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: 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 × 4 ÷ 880 = 0.45%
The analysis of bad debt provisions from 2019 to 2024 reveals a consistent approach to credit risk management, characterized by a low and stable allowance relative to the growth in gross receivables.
- Gross Accounts Receivable Trends
- Gross receivables exhibited a general upward trajectory, increasing from 477 million USD in 2019 to a peak of 966 million USD in 2023, before moderating to 880 million USD in 2024. This expansion indicates a significant increase in the total credit extended to customers over the six-year period.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts remained relatively static, fluctuating within a narrow range between 2 million USD and 5 million USD. Despite the substantial increase in gross receivables, the absolute value of the provision did not scale proportionally, ending the period at 4 million USD as of January 31, 2024.
- Credit Risk Ratio Analysis
- The allowance as a percentage of gross accounts receivable remained consistently below 1% throughout the analyzed timeframe. A peak occurred in 2020 at 0.75%, which was subsequently followed by a gradual decline to 0.45% by 2024. This downward trend in the percentage, occurring alongside an overall increase in gross receivables, suggests high credit quality among the customer base and efficient collections processes.
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