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: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × 7,730 ÷ 34,996 = 22.09%
An analysis of credit loss provisions and gross accounts receivable from 2017 to 2021 reveals significant volatility in credit risk exposure and a marked shift in the valuation of receivables.
- Allowance for Credit Losses
- The allowance for credit losses exhibited a consistent upward trajectory from 2017 through 2020, increasing from US$ 2,687 thousand to a peak of US$ 9,757 thousand. This period of growth culminated in a sharp spike between 2019 and 2020. A subsequent reduction to US$ 7,730 thousand in 2021 indicates a moderation in the estimated potential for credit losses.
- Gross Accounts Receivable
- Gross accounts receivable showed a substantial decline in 2018, dropping from US$ 36,364 thousand to US$ 16,964 thousand. Following this trough, the balance entered a recovery phase, increasing steadily each year to reach US$ 34,996 thousand by December 31, 2021. This trend indicates that by the end of the observed period, gross receivables had nearly returned to 2017 levels.
- Allowance as a Percentage of Gross Accounts Receivable
- The allowance ratio experienced a dramatic increase between 2017 and 2018, rising from 7.39% to 27.82%. This indicates a significant shift in the perceived risk profile of the receivables portfolio or a change in accounting estimates for credit losses. The ratio reached its maximum level of 30.15% in 2020 before declining to 22.09% in 2021. The fact that the ratio remained substantially higher from 2018 onward compared to the 2017 baseline suggests a sustained increase in the conservatism of credit loss provisioning.
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