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: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 20-F (reporting date: 2018-12-31), 20-F (reporting date: 2017-12-31).
1 2021 Calculation
Allowance as a percentage of accounts receivable from third parties = 100 × Allowance for credit loss ÷ Accounts receivable from third parties
= 100 × ÷ =
- Allowance for Credit Loss
- The allowance for credit loss remained relatively stable from 2017 to 2018 at 3 million US dollars before decreasing to 2 million US dollars in 2019 and maintaining that level through 2021. This indicates a cautious approach to provisioning for potential credit losses, with a reduction in expected losses over time.
- Accounts Receivable from Third Parties
- The accounts receivable from third parties experienced a decline from 882 million US dollars in 2017 to 669 million US dollars in 2019. Subsequently, the figure increased to 767 million US dollars in 2020 and further rose to 925 million US dollars by the end of 2021. This pattern suggests a contraction in receivables during the initial years followed by a recovery and growth in the later period.
- Allowance as a Percentage of Accounts Receivable
- This ratio decreased steadily from 0.34% in 2017 to 0.22% in 2021. The declining percentage trend reflects an improving credit environment or enhanced collection efficiency, reducing the relative risk associated with accounts receivable over the analyzed period.
- Overall Trends and Insights
- The data indicates an improving credit quality and risk management stance. Despite fluctuations in the accounts receivable levels, the company has managed to decrease both the absolute allowance for credit loss and its proportion relative to accounts receivable. This implies confident expectations in the recoverability of the receivables and a possible enhancement in credit policies or customer creditworthiness during the period from 2017 to 2021.