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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- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Current Ratio since 2005
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Price to Operating Profit (P/OP) since 2005
- Aggregate Accruals
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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 accounts and notes receivable, gross = 100 × Allowance ÷ Accounts and notes receivable, gross
= 100 × ÷ =
The financial data reveals several notable trends concerning the allowance for doubtful accounts and accounts and notes receivable over the period from 2018 to 2022.
- Allowance (US$ in thousands)
- The allowance experienced some fluctuations, starting at 1,882 thousand in 2018, decreasing to 1,567 thousand in 2019, followed by an increase to 2,105 thousand in 2020. It then rose further to 2,203 thousand in 2021 before slightly declining to 2,176 thousand in 2022. Overall, the allowance shows an upward trend after 2019, with a modest reduction at the end of the observed period.
- Accounts and Notes Receivable, Gross (US$ in thousands)
- There was a significant upward trajectory in the gross accounts and notes receivable balances throughout the period. The values increased steadily from 132,461 thousand in 2018 to 148,445 thousand in 2019, then sharply rose to 231,306 thousand in 2020, followed by continued growth to 323,022 thousand in 2021 and 360,366 thousand in 2022. This reflects considerable expansion in outstanding receivables over these years.
- Allowance as a Percentage of Accounts and Notes Receivable, Gross (%)
- While the gross receivables increased substantially, the allowance as a percentage of those receivables consistently decreased. It fell from 1.42% in 2018 to 1.06% in 2019, further down to 0.91% in 2020, 0.68% in 2021, and finally to 0.6% in 2022. This indicates an improving view on collectibility or possibly changes in credit policy or customer risk profile, as the proportion reserved for doubtful accounts diminished despite higher receivables.
In summary, the growth in accounts and notes receivable gross balances suggests expanding business operations or increased sales on credit. Concurrently, the allowance for doubtful accounts has not increased proportionally, leading to a decline in the allowance as a percentage of receivables. This trend may imply improved credit quality or more efficient collection efforts during the period under review.