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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- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Price to FCFE (P/FCFE)
- Return on Equity (ROE) since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Revenues
- Analysis of Debt
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2023-08-26), 10-K (reporting date: 2022-08-27), 10-K (reporting date: 2021-08-28), 10-K (reporting date: 2020-08-29), 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-25).
1 2023 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 increased steadily from 6,100 thousand USD in 2018 to a peak of 11,400 thousand USD in 2021. Subsequently, it declined to 9,500 thousand USD in 2022 and further decreased to 7,700 thousand USD in 2023, indicating a reduction in estimated uncollectible accounts after 2021.
- Accounts receivable, gross
- Gross accounts receivable displayed a consistent upward trend over the entire period. Starting at 264,236 thousand USD in 2018, it rose each year, reaching 528,085 thousand USD by 2023. This represents a doubling of receivables over the six-year span, reflecting growth in credit sales or extended credit terms.
- Allowance as a percentage of accounts receivable, gross
- The ratio of allowance to gross accounts receivable initially increased from 2.31% in 2018 to a high of 2.92% in 2021, signifying a growing proportion of receivables being reserved for potential credit losses. However, in the two subsequent years, the percentage declined sharply to 1.85% in 2022 and further to 1.46% in 2023. This suggests an improvement in the credit risk profile or a change in the impairment methodology, despite the growing accounts receivable base.
- Overall Analysis
- The data shows that while the gross accounts receivable base has expanded significantly, the company has managed to reduce the relative amount reserved for credit losses after 2021. This trend may indicate enhanced collection efforts, improved credit management, or favorable changes in customer creditworthiness. The decline in both allowance value and its ratio to receivables in recent years contrasts with earlier years when provisions increased alongside receivables, highlighting a positive shift in credit risk expectations.