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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- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Income Statement
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Net Profit Margin since 2019
- Total Asset Turnover since 2019
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2023-12-31), 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).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for doubtful accounts
- The allowance for doubtful accounts increased consistently over the five-year period, starting at 194 thousand US dollars in 2019 and rising significantly to 2,179 thousand US dollars by 2023. The most notable increase occurred between 2022 and 2023, indicating heightened provisions for potential credit losses.
- Accounts receivable, gross
- Gross accounts receivable demonstrated a strong upward trend throughout the timeframe. From 7,571 thousand US dollars in 2019, the figure increased substantially every year, reaching 116,731 thousand US dollars in 2023. The growth was particularly steep between 2020 and 2023, reflecting an expansion in receivables volume that may be associated with increased sales or extended credit terms.
- Allowance as a percentage of accounts receivable, gross
- This ratio exhibited some fluctuation across the years. Initially, the percentage rose from 2.56% in 2019 to 3.15% in 2020, suggesting a cautious approach to credit risk. However, it sharply declined to below 1% in 2021 and 2022, indicating a period of reduced expected credit losses relative to receivables. In 2023, the allowance ratio increased again to 1.87%, which aligns with the notable rise in the absolute allowance balance, potentially signaling a renewed concern about credit risk amidst growing receivables.
- Overall analysis
- The data reflects a consistent and substantial growth in gross accounts receivable, implying increased sales on credit or extended payment terms. The allowance for doubtful accounts has adjusted in response to perceived credit risk, with a significant increase in absolute provision in the most recent year. The variability of the allowance as a percentage of receivables suggests shifting expectations regarding collectability, possibly influenced by changing market conditions or credit policies. The recent upward movement in both absolute allowance and its percentage of receivables indicates an increased prudence in managing credit risk against a backdrop of expanding receivables.