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: 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 × ÷ =
- Allowance for credit losses
- The allowance for credit losses has shown an overall increasing trend over the five-year period. Starting at 900 thousand US dollars in 2018, it rose moderately to 1.2 million in 2019. There was a significant increase in 2020 to 2.5 million US dollars, followed by a slight decrease to 2.4 million in 2021. It then rose sharply again to 3.6 million in 2022, indicating a cautious approach towards potential credit risk in recent years.
- Accounts receivable, gross
- The gross accounts receivable demonstrate strong growth during the period analyzed. Beginning at 445.4 million US dollars in 2018, the figure increased steadily each year, reaching 545.5 million in 2019 and 722.5 million in 2020. The upward trend continued through 2021 with 810.1 million and accelerated further to 1.265 billion in 2022. This reflects growing sales or outstanding customer balances over the years.
- Allowance as a percentage of accounts receivable, gross
- The allowance for credit losses as a percentage of gross accounts receivable remains relatively stable but shows minor fluctuations. It was 0.2% in 2018, slightly increasing to 0.22% in 2019, then rising more noticeably to 0.35% in 2020. The ratio decreased marginally to 0.3% in 2021 and further to 0.28% in 2022. Despite the increase in the absolute allowance, the percentage relative to gross accounts receivable suggests that the company’s credit loss provisions are proportionate to the growth in receivables, with a peak in 2020 likely reflecting heightened credit risk considerations during that year.