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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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2024-01-31), 10-K (reporting date: 2023-01-31), 10-K (reporting date: 2022-01-31), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-01-31).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts displayed fluctuations over the observed period. It increased from 2 million US dollars in 2019 to a peak of 5 million in 2020, remained stable through 2022 and 2023, before decreasing slightly to 4 million in 2024. This pattern suggests periodic adjustments potentially aligned with changes in estimated credit risk or actual bad debt experience.
- Accounts Receivable, Gross
- Gross accounts receivable showed a consistent upward trend from 477 million US dollars in 2019 to a peak of 966 million in 2023, indicating increased credit sales or extended credit terms. However, in 2024, there was a notable decline to 880 million, which could signal tighter credit policies, improved collections, or a reduction in sales on credit.
- Allowance as a Percentage of Accounts Receivable, Gross
- The allowance as a percentage of gross accounts receivable started relatively low at 0.46% in 2019, increased to a high of 0.75% in 2020, then generally declined over the following years, reaching 0.45% in 2024. This downward trend in allowance percentage, despite increases and subsequent decreases in gross receivables, may indicate improved credit quality, enhanced collections efficiency, or a revised assessment of collectability risks.
- Overall Insights
- The data depicts a cycle of increasing and then somewhat stabilizing credit risk provisions, aligned with growth in accounts receivable followed by a slight contraction. The declining allowance percentage suggests enhanced credit risk management or improved customer payment performance. The slight decrease in both allowance and gross receivables in the latest period may signal a strategic shift towards more conservative credit exposure or improved cash collections.