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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- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Enterprise Value (EV)
- Selected Financial Data since 2012
- Operating Profit Margin since 2012
- Total Asset Turnover since 2012
- Price to Book Value (P/BV) since 2012
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
The financial data over the five-year period exhibits notable developments in the allowances for doubtful accounts and the gross accounts receivable levels.
- Allowance for doubtful accounts
- The allowance fluctuated considerably, starting at 564 thousand US dollars in 2019 and decreasing to 462 thousand in 2020. It then rose significantly to 1,590 thousand in 2021, followed by a decline to 979 thousand in 2022, before surging again to 2,502 thousand in 2023. This pattern indicates heightened caution in more recent years, particularly in 2021 and 2023.
- Accounts receivable, gross
- Gross accounts receivable exhibited a strong upward trend throughout the period. Beginning at 145,977 thousand US dollars in 2019, the figure increased steadily each year, reaching 448,461 thousand by 2023. This suggests significant growth in credit sales or outstanding receivables over these years.
- Allowance as a percentage of accounts receivable, gross
- The allowance percentage showed volatility but remained relatively low overall. It declined from 0.39% in 2019 to 0.25% in 2020, then increased to 0.47% in 2021, fell again to 0.22% in 2022, and finally rose to 0.56% in 2023. The increase in 2023 to the highest ratio in the observed period may indicate growing caution regarding credit risk despite overall growth in receivables.
Overall, the increase in gross receivables points to expanding operations or sales on credit, while the variations in the allowance suggest adjustments in credit risk management, possibly in response to changing economic conditions or customer creditworthiness. The higher allowance levels and percentages in the later years reflect more conservative estimations of potential losses.