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 trade, gross = 100 × Allowance for credit losses ÷ Accounts receivable trade, gross
= 100 × 1,614 ÷ 662,390 = 0.24%
The credit loss profile from 2019 through 2023 demonstrates a consistent pattern of low credit risk, characterized by a minimal allowance for credit losses relative to total gross accounts receivable. While absolute figures fluctuated, overall credit quality remained robust, with the exception of a temporary spike in risk perception in 2020.
- Allowance for Credit Losses Trends
- The absolute allowance for credit losses peaked in 2020 at US$ 3,009 thousand before declining sharply to US$ 664 thousand in 2021. A steady upward trend followed in 2022 and 2023, ending the period at US$ 1,614 thousand. This movement suggests a period of heightened credit risk assessment in 2020, followed by a significant reduction and subsequent gradual recalibration of reserves.
- Gross Accounts Receivable Volatility
- Gross trade receivables exhibited significant variance, decreasing from US$ 476,425 thousand in 2019 to a low of US$ 269,095 thousand in 2020. A substantial increase is observed by the end of the period, with receivables reaching US$ 662,390 thousand in 2023, representing the highest volume of outstanding trade receivables within the analyzed timeframe.
- Credit Loss Ratio Analysis
- The allowance as a percentage of gross accounts receivable remained consistently low, typically below 0.35%. A notable anomaly occurred in 2020, where the ratio climbed to 1.12%, coinciding with the lowest level of gross receivables. This divergence indicates a period of intensified credit risk or a more conservative provisioning strategy. Following this peak, the ratio declined to 0.15% in 2021 and settled at 0.24% by 2023, demonstrating that the substantial expansion of the receivables balance has not resulted in a proportional increase in expected credit losses.
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