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: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30).
1 2021 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 showed an overall increasing trend from 38,100 thousand US dollars in 2016 to a peak of 92,500 thousand US dollars in 2020. However, in 2021, there was a decline to 79,600 thousand US dollars. This pattern indicates an increasing recognition of potential credit losses over time, with a notable spike in 2020 followed by some improvement or adjustment in 2021.
- Accounts receivable, gross
- The gross accounts receivable amount steadily increased over the period, rising from 1,780,900 thousand US dollars in 2016 to 2,807,000 thousand US dollars in 2021. This reflects consistent growth in the company's credit sales or outstanding receivables, possibly indicating increased sales or extended credit terms.
- Allowance as a percentage of accounts receivable, gross
- The allowance as a percentage of gross accounts receivable fluctuated over the years, starting at 2.14% in 2016, increasing to 2.83% in 2017, and then declining to 2.20% by 2019. In 2020, the percentage sharply increased to 3.65%, before moderately decreasing to 2.84% in 2021. These variations suggest adjustments in management's estimation of credit risk relative to the total receivables, with a significant reassessment occurring in 2020, possibly due to external economic factors impacting collectability.