Name: Microchip Technology Inc. (NASDAQ:MCHP) | 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

	Mar 31, 2022	Mar 31, 2021	Mar 31, 2020	Mar 31, 2019	Mar 31, 2018	Mar 31, 2017
Selected Financial Data (US$ in thousands)
Allowance for expected credit losses	6,200)	5,200)	4,900)	2,000)	2,200)	2,084)
Accounts receivable, gross	1,078,800)	1,002,900)	938,900)	882,600)	565,900)	480,457)
Financial Ratio
Allowance as a percentage of accounts receivable, gross¹	0.57%	0.52%	0.52%	0.23%	0.39%	0.43%

Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).

¹ 2022 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for expected credit losses ÷ Accounts receivable, gross
= 100 × 6,200 ÷ 1,078,800 = 0.57%

An analysis of the credit loss provisions from 2017 to 2022 reveals a substantial expansion in both the gross receivables balance and the corresponding allowance for expected credit losses. While receivables grew steadily throughout the period, the provision for losses experienced a distinct structural shift starting in 2020.

Gross Accounts Receivable Trends: Gross accounts receivable exhibited consistent growth, increasing from $480.5 million in 2017 to $1.08 billion by 2022. A significant acceleration in the growth of the receivable balance occurred between 2018 and 2019, where the figure rose from $565.9 million to $882.6 million.
Allowance for Expected Credit Losses: The absolute value of the allowance remained relatively stable between 2017 and 2019, fluctuating between $2.0 million and $2.2 million. A sharp increase is observed in 2020, with the allowance rising to $4.9 million, followed by a continuing upward trend that reached $6.2 million by 2022.
Allowance as a Percentage of Gross Receivables: The ratio of the allowance to gross receivables reached a minimum of 0.23% in 2019. Subsequently, this metric more than doubled to 0.52% in 2020 and further increased to 0.57% by 2022. This transition suggests a shift toward a more conservative credit risk estimation or a perceived increase in the risk profile of the outstanding receivable portfolio beginning in 2020.

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