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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- Income Statement
- Balance Sheet: Assets
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Common Stock Valuation Ratios
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Price to Book Value (P/BV) since 2005
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2023-03-31), 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31).
1 2023 Calculation
Allowance as a percentage of trade accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Trade accounts receivable, gross
= 100 × ÷ =
The analysis of the financial data reveals several key trends regarding the allowance for doubtful accounts and trade accounts receivable over the six-year period ending March 31, 2023.
- Allowance for doubtful accounts
- The allowance for doubtful accounts increased steadily from $3.487 million in 2018 to $10.576 million in 2023. This consistent upward trajectory indicates a growing provision to cover potential losses from uncollectible receivables.
- Trade accounts receivable, gross
- The gross trade accounts receivable exhibited an overall upward trend, rising from $147.191 million in 2018 to $312.087 million in 2023. Notably, there was a sharp increase between 2021 and 2022, when the balance jumped from approximately $225.448 million to $311.732 million, and it remained relatively stable into 2023.
- Allowance as a percentage of trade accounts receivable, gross
- The allowance as a percentage of gross receivables fluctuated during the period. Starting at 2.37% in 2018, it increased to a peak of 4.32% in 2021, reflecting a more conservative approach or deteriorating credit quality at that time. Subsequently, the ratio decreased to 2.9% in 2022 before rising again to 3.39% in 2023. These variations imply adjustments in the company's expectations of collectability relative to the size of its receivables.
Overall, the data suggests that while the company has experienced significant growth in trade receivables, it has also increased its allowance for doubtful accounts to mitigate credit risk. The fluctuating allowance ratio points to dynamic credit management strategies responsive to changing business conditions.