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.
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 × 2,502 ÷ 448,461 = 0.56%
The financial data reveals a consistent expansion in gross accounts receivable over the five-year period from 2019 to 2023, accompanied by fluctuating allocations for doubtful accounts.
- Gross Accounts Receivable Growth
- Gross accounts receivable exhibited a strong upward trajectory, increasing from 145,977 thousand USD in 2019 to 448,461 thousand USD by the end of 2023. The most significant growth occurred between 2020 and 2022, while the increase between 2022 and 2023 was marginal, indicating a stabilization of the gross receivables balance.
- Allowance for Doubtful Accounts Volatility
- The allowance for doubtful accounts did not follow a linear growth path. After a slight decline in 2020, the allowance increased to 1,590 thousand USD in 2021, decreased to 979 thousand USD in 2022, and subsequently rose sharply to a period peak of 2,502 thousand USD in 2023.
- Credit Risk Ratio Analysis
- The allowance as a percentage of gross accounts receivable remained below 1% throughout the analyzed period, suggesting a generally low expected credit loss. However, the ratio demonstrated notable volatility, reaching a period low of 0.22% in 2022 before rising to 0.56% in 2023. This increase in 2023 indicates a more conservative valuation of receivables or a perceived increase in the credit risk associated with the outstanding balances.
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