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: 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 × 2,179 ÷ 116,731 = 1.87%
Between 2019 and 2023, a significant expansion in the scale of accounts receivable was observed, accompanied by a corresponding increase in the allowance for doubtful accounts. While gross receivables grew rapidly, the relative proportion of the allowance exhibited volatility, reaching a low point in 2021 before increasing toward the end of the period.
- Gross Accounts Receivable Trends
- Gross accounts receivable experienced exponential growth, rising from 7.57 million US dollars in 2019 to 116.73 million US dollars by 2023. This trajectory indicates a substantial increase in credit sales and revenue expansion over the five-year period.
- Absolute Allowance for Doubtful Accounts
- The allowance for doubtful accounts followed an upward trajectory in absolute terms, growing from 194 thousand US dollars in 2019 to 2.18 million US dollars in 2023. A notable acceleration occurred between 2022 and 2023, where the allowance more than tripled, suggesting a higher anticipation of potential credit losses.
- Allowance as a Percentage of Gross Receivables
- The ratio of the allowance to gross receivables fluctuated during the analyzed period. After peaking at 3.15% in 2020, the ratio declined sharply to 0.93% in 2021 and remained near 0.99% in 2022. However, the ratio increased to 1.87% in 2023, indicating a shift in the risk assessment of the receivables portfolio or an adjustment in credit loss forecasting.
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