Stock Analysis on Net

Microchip Technology Inc. (NASDAQ:MCHP)

$22.49

This company has been moved to the archive! The financial data has not been updated since February 2, 2023.

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
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
Accounts receivable, gross
Financial Ratio
Allowance as a percentage of accounts receivable, gross1

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 × ÷ =


Allowance for expected credit losses
The allowance for expected credit losses exhibits an overall increasing trend from 2017 through 2022. Initially, the allowance was relatively stable around the two-thousand mark during 2017 to 2019, with values of 2,084, 2,200, and 2,000 US$ thousands respectively. However, starting in 2020, there is a marked increase, with the allowance rising more than double compared to 2019, reaching 4,900 US$ thousands. This upward trajectory continues through 2021 and 2022, with allowances of 5,200 and 6,200 US$ thousands respectively.
Accounts receivable, gross
The gross accounts receivable have shown a consistent upward trend over the entire period from 2017 to 2022. Beginning at 480,457 US$ thousands in 2017, the value increased steadily each year, with notable growth between 2018 and 2019 where there is a substantial jump from 565,900 to 882,600 US$ thousands. This growth trend persists in subsequent years, culminating in a gross receivable value of 1,078,800 US$ thousands in 2022, indicating an increasing volume of receivables outstanding over time.
Allowance as a percentage of accounts receivable, gross
This ratio demonstrates variability throughout the period with an initial decline from 0.43% in 2017 to 0.23% in 2019, suggesting an improvement in credit risk or collectability of receivables during those years. However, from 2020 onwards, the percentage increases sharply, doubling to 0.52% in 2020 and maintaining this elevated level into 2021, with a further rise to 0.57% in 2022. This increase suggests a heightened expectation of credit losses relative to the growing accounts receivable balance in recent years.
Summary
Overall, the data reveals a significant increase in both gross accounts receivable and the allowance for expected credit losses starting in 2020, indicating a potential increase in credit risk or caution in collectible receivables. The rising allowance percentage alongside expanding receivables suggests that the company is recognizing higher potential credit losses as the asset base grows. The sharp increase in allowance after 2019 could be a response to changes in economic conditions or company credit policies. This pattern warrants attention as it may affect cash flow and financial stability if the trend in credit losses continues upward.