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 credit losses ÷ Accounts receivable, gross
= 100 × 1,988 ÷ 424,112 = 0.47%
The financial data indicates a period of fluctuation in gross accounts receivable from 2019 to 2023, while the absolute value of the allowance for credit losses remained relatively constant. This divergence resulted in a notable variation in the allowance as a percentage of gross receivables over the five-year period.
- Gross Accounts Receivable Trends
- Gross accounts receivable experienced significant growth between 2019 and 2021, rising from US$ 364.1 million to a peak of US$ 552.8 million. Following this peak, a contraction occurred, with balances decreasing to US$ 424.1 million by December 31, 2023.
- Stability of Credit Loss Provisions
- The allowance for credit losses demonstrated minimal volatility. The provision increased from US$ 1.7 million in 2019 to US$ 2.0 million in 2020 and remained stable within a narrow range between US$ 1.9 million and US$ 2.0 million through the end of 2023, regardless of the fluctuations in total receivables.
- Allowance Percentage Analysis
- The allowance as a percentage of gross accounts receivable exhibited a U-shaped trajectory. The ratio declined from 0.48% in 2019 to a low of 0.36% in 2021, which coincided with the peak in gross receivables. Subsequently, the ratio increased to 0.47% by 2023, returning to a level nearly identical to the 2019 baseline as the gross receivable balance decreased.
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