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
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 11,870 ÷ 284,432 = 4.17%
An analysis of the credit risk profile from 2017 to 2021 reveals a diverging trend between the growth of gross accounts receivable and the provision for doubtful accounts.
- Gross Accounts Receivable Trends
- Gross accounts receivable experienced a period of volatility between 2017 and 2018, decreasing from $228.9 million to $205.3 million. Following 2018, a consistent upward trajectory is observed, with balances rising to $284.4 million by December 31, 2021. This represents a significant expansion of the credit extended to customers over the final three years of the period.
- Allowance for Doubtful Accounts Movement
- The allowance for doubtful accounts initially trended upward, peaking at $14.4 million in 2019. However, a reversal occurred in 2020 and 2021, with the allowance decreasing to $11.9 million. The reduction in the allowance occurred despite the simultaneous increase in the gross receivables balance.
- Credit Risk Ratio Analysis
- The allowance as a percentage of gross accounts receivable reached a maximum of 6.45% in 2018. From that point, a steady decline is observed, ending at 4.17% in 2021. This downward trend suggests an improvement in the perceived collectibility of receivables or a shift toward a more aggressive credit risk estimation, as a smaller proportion of total receivables is being reserved for potential losses while the total volume of receivables grows.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?