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: 2024-10-31), 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The following analysis presents the trends observed in the financial items over the fiscal years ending October 31 from 2019 to 2024.
- Allowance for Credit Losses (US$ in thousands)
- The allowance for credit losses has shown a consistent upward trend throughout the period. Starting at $9,046 thousand in 2019, the allowance increased sharply to $28,564 thousand in 2020. It continued to rise steadily in subsequent years, reaching $51,008 thousand by 2024. This suggests a growing recognition of potential credit risks associated with receivables.
- Accounts Receivable, Gross (US$ in thousands)
- Gross accounts receivable exhibited fluctuations over the period. There was a notable increase from $562,941 thousand in 2019 to $809,273 thousand in 2020, followed by a decrease to $599,181 thousand in 2021. Subsequently, accounts receivable rose sharply again, peaking at $989,689 thousand in 2023 before slightly declining to $985,478 thousand in 2024. Overall, the trend indicates variability with a general upward movement across the six years.
- Allowance as a Percentage of Accounts Receivable, Gross (%)
- This ratio, representing the allowance for credit losses relative to the gross accounts receivable, has also increased over the observed years. It started at 1.61% in 2019 and climbed to a peak of 5.18% in 2024. The ratio fluctuated during this period, rising to 5.12% in 2021, then decreasing to 3.58% in 2022 before climbing again. The upward trend indicates a progressively more conservative approach in estimating potential credit losses relative to receivables.
In summary, the data reveal a growing allowance for credit losses both in absolute terms and relative to the gross accounts receivable. The fluctuations in gross accounts receivable reflect variability in sales or collection patterns. The increasing allowance percentages suggest heightened caution about credit risk over the years analyzed.