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).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
The financial data reveals notable fluctuations and trends in the allowance for doubtful accounts and accounts receivable for the periods spanning from the end of 2021 to the end of 2024.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts exhibited relative stability between 2021 and 2022, holding steady at 3 million USD. In 2023, there was a significant decrease to 1 million USD, followed by a substantial increase to 11 million USD in 2024. This final increase represents a notable rise in expected credit losses or greater conservatism in estimating uncollectible receivables.
- Accounts Receivable, Gross
- Gross accounts receivable experienced a rise from 1,118 million USD in 2021 to 1,441 million USD in 2022. However, it sharply declined to 594 million USD in 2023, indicating a possible reduction in sales or improved collections during that year. This figure then recovered substantially to 1,237 million USD in 2024, though it did not fully return to the previous peak.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio decreased steadily from 0.27% in 2021 to 0.21% in 2022 and further down to 0.17% in 2023, reflecting a lower expected credit loss relative to the accounts receivable base during that period. However, in 2024, there was a sharp increase to 0.89%, aligning with the increased allowance amount, and likely indicating a reassessment of credit risk or increased provision for potential write-offs despite the partial recovery in accounts receivable.
Overall, the data suggests a cautious approach towards credit risk in 2024, contrasted by more optimistic or less conservative estimations in previous years, particularly 2023. The fluctuations in gross accounts receivable point to volatility in the company’s sales or collection efficiency over the four-year period.