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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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Provision for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Provision for doubtful accounts
- The provision for doubtful accounts exhibited a general downward trend over the five-year period. Starting at 7,780 thousand US dollars in 2017, it increased slightly to 8,648 thousand in 2018 but then steadily declined each subsequent year, reaching a notably low value of 321 thousand by 2021. This significant reduction in the provision suggests an improvement in the expected collectability of receivables or a change in estimation policies regarding credit risk.
- Accounts receivable, gross
- The gross accounts receivable experienced considerable fluctuation during the period. After beginning at 672,465 thousand US dollars in 2017, the amount peaked dramatically to 1,250,491 thousand in 2018. It then noticeably decreased in both 2019 (616,949 thousand) and 2020 (572,791 thousand) before sharply increasing again to 1,438,352 thousand in 2021, the highest in the dataset. This volatility could indicate variations in sales volumes, credit policies, or collection efficiency over the years.
- Allowance as a percentage of accounts receivable, gross
- This percentage showed a declining trend with some fluctuations. It started at 1.16% in 2017, dropped to 0.69% in 2018, rose again to 1.11% in 2019, and slightly decreased to 1.09% in 2020. By 2021, it declined sharply to 0.02%, corresponding with the drastic decrease in the provision for doubtful accounts during the same year. The low percentage in 2021 suggests minimal anticipated credit losses relative to total receivables, potentially reflecting improved credit quality or changes in risk assessment practices.