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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- Statement of Comprehensive Income
- Common-Size Income Statement
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Debt
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).
1 2020 Calculation
Allowance as a percentage of trade receivables, gross = 100 × Allowance for doubtful accounts ÷ Trade receivables, gross
= 100 × ÷ =
The analysis of the financial data reveals noteworthy fluctuations in the allowance for doubtful accounts and trade receivables over the six-year period ending September 30, 2020.
- Allowance for doubtful accounts
- The allowance exhibits significant variability, with values ranging from a low of 22,800 thousand USD in 2016 to a high of 48,800 thousand USD in 2019. Notably, there is a sharp increase in 2017 followed by a considerable decrease in 2018. The allowance in 2020 almost returns to the 2015 level, indicating a cyclical pattern rather than a consistent trend.
- Trade receivables, gross
- Trade receivables show a general downward trend from 1,462,700 thousand USD in 2016 to 1,219,800 thousand USD in 2017. Subsequently, there is a recovery phase peaking at 1,309,000 thousand USD in 2019, followed by a slight decline to 1,298,700 thousand USD in 2020. Overall, the values fluctuate moderately without a clear long-term increasing or decreasing trend.
- Allowance as a percentage of trade receivables, gross
- This ratio follows the movements of the allowance for doubtful accounts relative to the gross receivables. It shows pronounced spikes in 2017 and 2019 at approximately 3.75% and 3.73% respectively, indicating periods of increased estimated credit risk. In contrast, the percentage stays near or below 2% in the other years, reflecting lower expected credit losses relative to receivables.
In summary, the company experiences considerable fluctuations in its allowance for doubtful accounts both in absolute terms and as a portion of trade receivables. These variations suggest variable credit risk assessments or changing economic conditions impacting collectibility. Trade receivables themselves display modest volatility without a sustained directional trend. The peaks in allowance ratios during 2017 and 2019 merit attention, as they may reflect heightened caution or deteriorating receivable quality during those years.