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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- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Operating Profit Margin since 2020
- Return on Assets (ROA) since 2020
- Debt to Equity since 2020
- Price to Earnings (P/E) since 2020
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2025-01-31), 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).
1 2025 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses has generally increased over the period, starting at $1,100 thousand in 2020 and rising to $2,800 thousand by 2025. Notably, there was a significant increase between 2021 and 2023, with the allowance more than doubling from $1,200 thousand to $2,600 thousand before fluctuating slightly in subsequent years.
- Accounts Receivable, Gross
- The gross accounts receivable amount shows a substantial upward trend throughout the period. Starting from $166,087 thousand in 2020, it increased sharply each year to reach $1,131,364 thousand by 2025. This trend indicates rapid growth in outstanding receivables over the six-year span.
- Allowance as a Percentage of Accounts Receivable, Gross
- The allowance for credit losses as a percentage of gross accounts receivable has consistently decreased over time. It declined from 0.66% in 2020 to 0.25% in 2025. This decline suggests an improvement in the quality of receivables or greater confidence in the collectability of the outstanding balances despite the rising gross amount.
- Summary
- While the absolute amount of the allowance for credit losses has increased, this is outpaced by the even greater growth in gross accounts receivable. The decreasing ratio of allowance to receivables indicates improving risk management or creditworthiness of customers. The steady increase in gross receivables signifies rapid business expansion, with the company potentially extending more credit to customers. However, the relatively lower allowance rate may require monitoring to ensure that credit risk remains adequately covered as receivables grow.