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
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Price to FCFE (P/FCFE)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Equity (ROE) since 2010
- Return on Assets (ROA) since 2010
- Price to Book Value (P/BV) since 2010
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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 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The financial data reveals a consistent increase in the allowance for credit losses over the five-year period, rising from 4,805 thousand USD in 2017 to 12,025 thousand USD in 2021. This growth indicates a rising provision to cover potentially uncollectible accounts which could suggest increased credit risk or more conservative credit loss recognition policies.
Accounts receivable, gross, shows a significant upward trend, growing from 284,807 thousand USD in 2017 to 558,491 thousand USD in 2021. This near doubling in the value of accounts receivable points to expanding sales or extended credit terms to customers, which increases the capital tied up in receivables.
The allowance as a percentage of gross accounts receivable exhibits some fluctuation. Initially, it declines slightly from 1.69% in 2017 to 1.47% in 2018, then increases sharply to 3.10% in 2020, before falling back to 2.15% in 2021. This pattern suggests a variable approach to provisioning relative to the size of gross receivables, possibly reflecting changes in the expected collectability of receivables or adjustments in credit policy in response to economic conditions.
Overall, the data indicates that while accounts receivable growth places upward pressure on credit risk provisions, the allowance percentage has not consistently kept pace, indicating management's possible reassessments of credit risk and collection prospects over time. The peak in 2020 may be associated with elevated risk concerns during that year, followed by some relaxation or improved collection expectations in 2021.