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: 2022-12-31), 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).
1 2022 Calculation
Allowance as a percentage of customer receivables, gross = 100 × Allowance for uncollectible accounts ÷ Customer receivables, gross
= 100 × 6,677 ÷ 585,325 = 1.14%
A consistent upward trend is observed in the valuation of both customer receivables and the corresponding allowance for uncollectible accounts between 2018 and 2022. After a marginal decrease in 2019, both metrics entered a period of sustained growth, with the most significant acceleration occurring between 2020 and 2021.
- Gross Customer Receivables
- Gross receivables increased from 431,201 thousand dollars in 2018 to 585,325 thousand dollars by the end of 2022. This represents a substantial expansion in the total credit extended to customers, with a particularly sharp rise of approximately 28% occurring between 2020 and 2021.
- Allowance for Uncollectible Accounts
- The allowance for uncollectible accounts rose from 3,632 thousand dollars in 2018 to 6,677 thousand dollars in 2022. This growth mirrors the increase in gross receivables but occurs at a more accelerated pace, nearly doubling over the five-year period.
- Allowance as a Percentage of Gross Receivables
- The ratio of the allowance to gross receivables demonstrates a steady, monotonic increase every year, rising from 0.84% in 2018 to 1.14% in 2022. This indicates that the allowance is growing faster than the underlying receivable balance.
The progressive increase in the allowance percentage suggests a shift toward a more conservative credit loss estimation or an increase in the perceived credit risk associated with the customer base. The move from 0.84% to 1.14% reflects a heightened anticipation of potential defaults relative to the total volume of outstanding receivables.
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