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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- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Analysis of Solvency Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Price to Operating Profit (P/OP) since 2005
- Analysis of Debt
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2023-12-31), 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).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts, sales returns and cash discounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for doubtful accounts, sales returns and cash discounts
- The allowance amount showed a declining trend from 2019 to 2020, decreasing from 2,045 thousand US dollars to 1,878 thousand US dollars. Subsequently, it increased sharply in 2021 and 2022, reaching more than five times the 2020 figure at 10,460 thousand US dollars. In 2023, the allowance decreased but remained relatively elevated at 7,638 thousand US dollars compared to the earlier years.
- Accounts receivable, gross
- Gross accounts receivable increased consistently over the period analyzed. Starting at 542,375 thousand US dollars in 2019, it rose steadily each year, reaching 1,201,602 thousand US dollars by the end of 2023. This represents an overall growth of approximately 121% over five years, demonstrating expanding sales or credit extended by the company.
- Allowance as a percentage of accounts receivable, gross
- The allowance percentage relative to gross accounts receivable exhibited variability. It started relatively low at 0.38% in 2019, dropped to 0.28% in 2020, and then increased to 0.52% in 2021. The ratio peaked notably at 1.02% in 2022, indicating a higher expected credit loss or risk in accounts receivable during that period. In 2023, the percentage declined to 0.64%, remaining higher than the earlier years but reduced from the peak level.
- Overall insights
- The data reveals significant growth in accounts receivable gross amounts, suggesting increased sales or extended credit terms over the five-year period. The allowance for doubtful accounts and related adjustments shows considerable fluctuations, with a notable increase in allowance values and percentages especially in 2021 and 2022. This pattern may imply increased credit risk or more conservative provisioning in those years, followed by a partial normalization in 2023. The allowance as a percentage of gross receivables remains higher in the latter years compared to the initial period, indicating a potentially heightened focus on credit risk management.