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Lam Research Corp. (NASDAQ:LRCX)

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Analysis of Bad Debts

Microsoft Excel

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

Microsoft Excel
Jun 30, 2024 Jun 25, 2023 Jun 26, 2022 Jun 27, 2021 Jun 28, 2020 Jun 30, 2019
Selected Financial Data (US$ in thousands)
Allowance
Accounts receivable, gross
Financial Ratio
Allowance as a percentage of accounts receivable, gross1

Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27), 10-K (reporting date: 2020-06-28), 10-K (reporting date: 2019-06-30).

1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance ÷ Accounts receivable, gross
= 100 × ÷ =


Allowance for doubtful accounts
The allowance balance exhibits a relatively stable pattern across the years, with values fluctuating within a narrow range between approximately $5.0 million and $5.6 million. Notably, the allowance peaked around mid-2022 at $5.6 million but gradually decreased thereafter to $5.3 million by mid-2024.
Accounts receivable, gross
The gross accounts receivable amount shows significant variability and an overall increasing trend from 2019 through 2022. It rose sharply from about $1.46 billion in mid-2019 to $4.32 billion in mid-2022. However, after this peak, there is a marked decline with balances falling to approximately $2.83 billion in mid-2023 and further down to around $2.52 billion in mid-2024.
Allowance as a percentage of accounts receivable, gross
This ratio indicates the proportion of gross accounts receivable reserved as allowance for doubtful accounts. There is a clear downward trend from 0.34% in 2019 to a low of 0.13% in 2022, suggesting improving credit quality or conservative allowance estimates relative to receivables growth during that period. Subsequently, this percentage increases slightly to 0.19% in 2023 and 0.21% in 2024, implying a modest increase in credit risk consideration or potential deterioration in receivable quality in the most recent years.
Overall analysis
The data reveals that while the absolute allowance amounts remain fairly consistent, large fluctuations in gross accounts receivable volumes heavily influence the allowance as a percentage of receivables. The pronounced growth in accounts receivable through 2022, followed by a sharp decline in the subsequent two years, could reflect changes in sales volume, customer payment patterns, or credit policies. The decreasing allowance ratio up to 2022 suggests an improving or stable credit environment relative to receivable growth, whereas the slight rebound in the ratio afterward may indicate increasing caution regarding receivables collectability.