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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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2024-09-29), 10-K (reporting date: 2023-10-01), 10-K (reporting date: 2022-10-02), 10-K (reporting date: 2021-10-03), 10-K (reporting date: 2020-09-27), 10-K (reporting date: 2019-09-29).
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 demonstrates a marked increase from 6,700 thousand USD in 2019 to a peak of 27,200 thousand USD in 2022. Subsequently, this figure declines to 21,200 thousand USD by 2024. This pattern suggests an elevation in anticipated credit risk during the years leading to 2022, followed by a moderation in the estimation of potential credit losses in the more recent periods.
- Accounts Receivable, Gross
- Gross accounts receivable figures exhibit consistent growth over the observed period, rising from 885,900 thousand USD in 2019 to 1,235,000 thousand USD in 2024. Notably, the increase accelerates after 2020, with a substantial jump between 2021 and 2022. This upward trend reflects increased sales or extended credit terms granted to customers, contributing to a larger receivables balance.
- Allowance as a Percentage of Accounts Receivable, Gross
- The allowance for credit losses relative to gross accounts receivable rises significantly from 0.76% in 2019 to a high of 2.98% in 2020, indicating a heightened provision relative to receivables possibly due to economic uncertainty or increased credit risk. After peaking in 2020, the percentage gradually declines annually to 1.72% by 2024, signaling improved credit risk assessment or better collection performance over the period.
- Summary of Trends
- Overall, the data reveals a period of increased credit risk provision around 2020 to 2022, coinciding with a sizable growth in accounts receivable. The subsequent reduction in the allowance both in absolute terms and relative percentage suggests enhanced credit quality or more effective risk management post-2022. The continuous growth in accounts receivable highlights expanding business activity but also underscores the importance of maintaining vigilant credit control to mitigate potential losses.