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.
Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).
1 2022 Calculation
Allowance as a percentage of trade receivables = 100 × Allowance for credit losses ÷ Trade receivables
= 100 × 624 ÷ 91,232 = 0.68%
The credit risk profile over the six-year period from 2017 to 2022 is characterized by a significant expansion in trade receivables and a period of heightened provisioning between 2019 and 2020, followed by a subsequent stabilization.
- Trade Receivables Growth
- A general upward trajectory in trade receivables is observed, increasing from 54,337 thousand US dollars in 2017 to a peak of 97,953 thousand US dollars in 2021. While a slight contraction occurred in 2020 and again in 2022, the overall balance remained substantially higher than the 2017 baseline, indicating an expansion in the company's credit exposure.
- Allowance for Credit Losses Trends
- The allowance for credit losses remained relatively stable and low through 2018, but experienced a sharp increase starting in 2019, rising from 320 thousand US dollars to 1,040 thousand US dollars. This upward trend peaked in 2020 at 1,202 thousand US dollars. From 2021 onward, a consistent decline is evident, with the allowance dropping to 624 thousand US dollars by March 31, 2022.
- Allowance as a Percentage of Trade Receivables
- The ratio of the allowance to trade receivables demonstrates a notable spike in perceived credit risk or a shift in estimation methodology during 2019 and 2020. The ratio rose from 0.45% in 2018 to a peak of 1.40% in 2020. Following this peak, the ratio declined to 0.79% in 2021 and further to 0.68% in 2022. This suggests that while credit risk intensified mid-period, the company has since reduced its proportional reserve, indicating improved collectability or a normalization of the credit environment.
In summary, the data indicates a period of volatility in credit loss expectations peaking in 2020, which has since transitioned into a downward trend in both the absolute allowance and the relative percentage of receivables reserved for losses.
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