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: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
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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 receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Accounts Receivable, Gross
- There is a clear upward trend in gross accounts receivable over the period analyzed. The amount increased from $94,901 thousand at the end of 2018 to $166,140 thousand by the end of 2022. This represents a sustained growth, indicating rising sales or expanding credit sales activities over the five years.
- Allowance for Credit Losses
- The allowance for credit losses showed some fluctuations but overall increased from $5,709 thousand in 2018 to a peak of $15,110 thousand in 2020, before declining to $12,195 thousand in 2022. Despite the reduction after 2020, the allowance at the end of 2022 remains more than double the value in 2018. This suggests a cautious approach to potential credit risk, particularly heightened around 2020.
- Allowance as a Percentage of Accounts Receivable, Gross
- Expressed as a percentage of gross accounts receivable, the allowance exhibited significant variation. It declined from 6.02% in 2018 to 5.24% in 2019, then rose sharply to 12.69% in 2020. Subsequently, it decreased to 9.68% in 2021 and further to 7.34% in 2022. This pattern likely reflects changes in the assessment of credit risk relative to the growth in receivables, with a notable increase in expected credit losses in 2020 followed by some normalization in subsequent years.
- Overall Analysis
- The data reveals that while accounts receivable have grown substantially, reflecting overall business expansion or increased sales on credit, the company has adjusted its allowance for credit losses in response to changing risk assessments. The spike in the allowance ratio in 2020 indicates heightened credit risk concerns during that period, which eased somewhat in the following years. By 2022, the allowance remains elevated compared to the earliest period, suggesting a continued prudent stance on credit loss provisioning amidst growth.