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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- Statement of Comprehensive Income
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Selected Financial Data since 2005
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) since 2005
- Aggregate Accruals
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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 × ÷ =
- Allowance for uncollectible accounts
- The allowance for uncollectible accounts has shown a consistent upward trend from 2018 to 2022. It increased from $3,632 thousand in 2018 to $6,677 thousand in 2022, nearly doubling over the five-year period. The largest year-over-year increases occurred between 2020 and 2021, and then again between 2021 and 2022, indicating a growing recognition of potential credit losses.
- Customer receivables, gross
- Gross customer receivables exhibited volatility with an initial decrease from $431,201 thousand in 2018 to $401,076 thousand in 2019. However, this was followed by marked increases in subsequent years, reaching a peak of $585,325 thousand in 2022. This reflects overall growth in credit extended to customers, particularly a significant jump between 2020 and 2021.
- Allowance as a percentage of customer receivables, gross
- The allowance expressed as a percentage of gross customer receivables has gradually increased over the analyzed period. Starting at 0.84% in 2018, it rose to 1.14% in 2022. This steady upward trend suggests a cautious approach to credit risk, with the company increasing its provision relative to the size of its receivables.
- Overall insights
- The parallel increase in both gross customer receivables and the allowance for uncollectible accounts indicates that while the company has expanded its credit sales, it has correspondingly heightened its recognition of credit risk. The rising percentage allowance ratio points to either a more conservative credit policy or deteriorating credit quality. The data suggests vigilance in managing credit risk despite growth in receivables.