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
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Price to Sales (P/S) since 2012
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for credit losses
- The allowance for credit losses exhibited a significant upward trend from July 2019 to July 2021, increasing from $800 thousand to $11,200 thousand. However, starting from July 2022, the allowance decreased steadily year over year to $7,500 thousand by July 2024. This pattern suggests that the company initially anticipated higher credit risks or experienced more credit losses but later revised its expectations downward or improved credit conditions.
- Accounts receivable, gross
- The gross accounts receivable showed consistent and substantial growth across the entire period. Starting at $583.2 million in July 2019, the figure nearly doubled by July 2020 to approximately $1.04 billion. This upward trajectory continued with increases each subsequent year, reaching $2.63 billion by July 2024. This growth indicates expanding sales or credit extension to customers over time.
- Allowance as a percentage of accounts receivable, gross
- The allowance as a percentage of gross accounts receivable rose sharply from 0.14% in July 2019 to a peak of 0.89% in July 2021, reflecting a more conservative stance on potential credit losses during that period. Following this peak, the ratio declined steadily to 0.29% by July 2024, suggesting an improved receivables quality or reduced credit risk.