Analysis of Bad Debts
Allowance for doubtful accounts receivable (bad debts) is a contra account which reduce the balance of the company gross accounts receivable. The relationship between the allowance and the balance in receivables should be relatively constant unless there is a change in the economy overall or a change in customer base.
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- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Assets
- Common Stock Valuation Ratios
- Dividend Discount Model (DDM)
- Operating Profit Margin since 2013
- Current Ratio since 2013
- Total Asset Turnover since 2013
- Price to Operating Profit (P/OP) since 2013
- Price to Book Value (P/BV) since 2013
- Analysis of Debt
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Allowance as a percentage of trade accounts receivable and unbilled services, gross = 100 × Allowance for doubtful accounts ÷ Trade accounts receivable and unbilled services, gross
= 100 × ÷ =
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts shows an overall increasing trend from 2018 to 2022. Starting at 15 million USD in 2018, the figure rises moderately to 16 million USD in 2019, then more than doubles to 34 million USD in 2020. It slightly decreases to 33 million USD in 2021 before increasing again to 36 million USD in 2022. This pattern suggests a heightened recognition of potential credit losses, particularly from 2019 to 2020, stabilizing somewhat in subsequent years but remaining elevated compared to earlier periods.
- Trade Accounts Receivable and Unbilled Services, Gross
- The gross trade accounts receivable and unbilled services demonstrate fluctuations with an overall upward movement over the five-year period. Starting at 2,409 million USD in 2018, it increases to 2,598 million USD in 2019, then decreases to 2,444 million USD in 2020. The balance improves again in 2021 to 2,584 million USD and significantly rises to 2,953 million USD in 2022. This indicates that the company’s receivables volume grew notably in the latest year, potentially reflecting increased sales or extended credit terms.
- Allowance as a Percentage of Trade Accounts Receivable and Unbilled Services, Gross
- This ratio highlights the proportion of receivables expected to be uncollectible. It remained stable at 0.62% in both 2018 and 2019. However, it jumps sharply to 1.39% in 2020, decreasing slightly to 1.28% in 2021 and 1.22% in 2022. The rise in 2020 suggests heightened credit risk or more conservative provisioning during that year, with a gradual improvement in the allowance ratio afterward, even as receivables increased.
- Summary
- The data indicates a growing allowance for doubtful accounts, particularly marked in 2020, coinciding with a spike in the percentage of allowance relative to receivables, possibly due to increased credit risk or uncertainty during that period. Despite fluctuations in the gross receivables, there is an overall increase by 2022, which may reflect business growth or changes in credit policies. The subsequent slight decline in the allowance ratio after 2020 suggests some improvement in receivables quality or risk management, although the allowance levels remain higher than in the initial years analyzed.