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.
Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2024-02-03), 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02).
1 2024 Calculation
Allowance as a percentage of receivables, gross = 100 × Allowance ÷ Receivables, gross
= 100 × 4,400 ÷ 95,400 = 4.61%
The analysis of the allowance for doubtful accounts reveals significant volatility in the valuation of receivables and the associated risk assessments over the six-year period ending February 3, 2024.
- Allowance for Doubtful Accounts Trends
- A substantial spike in the allowance for doubtful accounts occurred in February 2020, reaching 13.2 million USD. Following this peak, a consistent downward trend was observed from January 2021 through January 2023, with the allowance bottoming out at 2.2 million USD. This contraction was reversed in February 2024, when the allowance doubled to 4.4 million USD.
- Gross Receivables Fluctuations
- Gross receivables exhibited an inconsistent trajectory, with peaks in February 2020 (155.1 million USD) and January 2023 (156.1 million USD). A notable decline occurred in January 2021, dropping to 108.9 million USD, followed by a recovery over the next two years. The most significant reduction is observed in February 2024, where gross receivables fell to 95.4 million USD, the lowest level recorded in the period.
- Ratio Analysis of Allowance to Gross Receivables
- The allowance as a percentage of gross receivables peaked at 8.51% in February 2020, indicating a period of heightened credit risk or a more conservative provisioning strategy. This ratio subsequently declined for three consecutive years, reaching a low of 1.41% in January 2023. In February 2024, the ratio increased sharply to 4.61%, demonstrating that the increase in the allowance occurred despite a simultaneous and significant decrease in the total volume of gross receivables.
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