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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- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Analysis of Revenues
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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 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 experienced a gradual decline from 2018 through 2020, decreasing from 6,195 thousand USD to 5,774 thousand USD. However, starting in 2021, there was a significant increase, with the allowance rising sharply to 21,761 thousand USD and further increasing to 50,383 thousand USD in 2022.
- Accounts Receivable, Gross
- The gross accounts receivable showed variability over the period. It declined from 660,365 thousand USD in 2018 to 620,882 thousand USD in 2019, then increased markedly to 828,527 thousand USD in 2020. The upward trend continued with a substantial jump to 1,730,557 thousand USD in 2021, before declining somewhat to 1,498,522 thousand USD in 2022.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio remained relatively stable and low from 2018 to 2020, fluctuating between 0.7% and 0.96%. In 2021, the percentage rose notably to 1.26% and then surged significantly to 3.36% in 2022, indicating a growing proportion of doubtful accounts relative to the total accounts receivable.
- Overall Analysis
- There is a clear pattern of increasing credit risk exposure starting in 2021, reflected by the dramatic rise in both the absolute allowance for credit losses and its proportion relative to gross accounts receivable. The sharp increase in accounts receivable in 2021 followed by a decline in 2022 suggests fluctuations in sales or cash collections. The considerable increase in allowance and its ratio in the last two periods signals heightened caution regarding collectibility, possibly due to deteriorating economic conditions or changes in customer creditworthiness.