Name: Fortinet Inc. (NASDAQ:FTNT) | Analysis of Bad Debts
Creator: Stock Analysis on Net

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

Allowance for Doubtful Accounts Receivable

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Allowance for credit losses	3,600)	2,400)	2,500)	1,200)	900)
Accounts receivable, gross	1,265,300)	810,100)	722,500)	545,500)	445,400)
Financial Ratio
Allowance as a percentage of accounts receivable, gross¹	0.28%	0.30%	0.35%	0.22%	0.20%

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ 2022 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × 3,600 ÷ 1,265,300 = 0.28%

Between 2018 and 2022, a consistent expansion in gross accounts receivable was observed, accompanied by a corresponding increase in the allowance for credit losses. Despite the growth in absolute values, the ratio of the allowance to gross receivables remained minimal, indicating a stable approach to credit risk management and a high quality of the receivables portfolio.

Growth of Gross Accounts Receivable: Gross accounts receivable experienced sustained growth, rising from US$ 445.4 million in 2018 to US$ 1.265 billion by the end of 2022. The most significant acceleration occurred between 2021 and 2022, where receivables increased by approximately 56% within a single fiscal year.
Trends in Allowance for Credit Losses: The absolute value of the allowance for credit losses increased from US$ 900 thousand in 2018 to US$ 3.6 million in 2022. A notable increase occurred in 2020, where the allowance more than doubled from the previous year to reach US$ 2.5 million, followed by a further increase to its peak in 2022.
Analysis of the Allowance Percentage: The allowance as a percentage of gross accounts receivable remained consistently low, fluctuating between 0.20% and 0.35%. The ratio peaked in 2020 at 0.35%, before gradually declining to 0.28% by 2022. The maintenance of this ratio well below 1% suggests that credit losses are managed effectively and that the risk of default across the customer base remains very low.

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