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: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The data reveals notable trends regarding the company's accounts receivable and the associated allowance for credit losses over a five-year period:
- Accounts receivable, gross
- The gross accounts receivable exhibit consistent and substantial growth each year. From 165,827 thousand US dollars at the end of 2020, the figure escalates to 615,221 thousand US dollars by the end of 2024. This represents an approximate quadrupling over the five-year span, indicating an expanding volume of credit sales or receivables outstanding.
- Allowance for credit losses
- The allowance for credit losses also increases year-over-year, rising from 2,468 thousand US dollars in 2020 to 16,302 thousand US dollars in 2024. This increase is more than sixfold, which is proportionally higher than the growth in gross accounts receivable. This suggests heightened recognition of potential credit risk or greater provisions relative to outstanding receivables.
- Allowance as a percentage of accounts receivable, gross
- This ratio fluctuates over the years but shows an overall upward trend, starting at 1.49% in 2020, dipping slightly to 1.1% in 2021, and then rising to 2.65% by 2024. The increasing percentage from 2021 onwards indicates a more conservative approach in estimating credit losses or a deterioration in the quality of receivables.
In summary, the company is experiencing rapid growth in its accounts receivable, accompanied by a more than proportional increase in the credit loss allowance. This results in a rising allowance-to-receivables ratio, which may reflect growing credit risk exposure or a more cautious stance in provisioning policies. The pattern suggests heightened attention to credit risk management amidst expanding sales or credit extension activities.