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: 2024-09-30), 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts has shown an overall increasing trend from 2,568 thousand US dollars in 2019 to 6,454 thousand US dollars in 2024. Notably, there was a significant rise between 2019 and 2020, followed by a decrease in 2021 and 2022. From 2022 onward, the allowance resumed an upward trajectory, reaching its highest level in 2024.
- Accounts Receivable, Gross
- The gross accounts receivable fluctuated during the period but generally exhibited growth. Starting at 334,365 thousand US dollars in 2019, the figure increased to 393,326 thousand in 2020, then declined to 353,713 thousand in 2021 before gradually rising to 475,737 thousand by 2024. The largest increase occurred between 2022 and 2024.
- Allowance as a Percentage of Accounts Receivable, Gross
- The ratio of allowance for doubtful accounts to gross accounts receivable increased significantly from 0.77% in 2019 to 1.29% in 2020. It then declined slightly over the next two years, stabilizing around 1.13%-1.14% in 2022 and 2023. By 2024, the percentage rose again to 1.36%, indicating a growing proportion of receivables considered doubtful relative to gross accounts receivable.
- Overall Observations
- The data reflect an increase in both the gross accounts receivable and the allowance for doubtful accounts over the six-year period, with some volatility in between. The allowance as a percentage of gross accounts receivable nearly doubled from 2019 to 2024, signaling a more conservative approach or increased estimation of credit risk despite the overall growth in receivables. This could imply heightened attention to credit quality or an increase in expected credit losses relative to receivable balances.