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 Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Price to FCFE (P/FCFE)
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
- Aggregate Accruals
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2022-12-31), 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).
1 2022 Calculation
Allowance as a percentage of accounts receivable, trade, gross = 100 × Allowances for doubtful accounts, anticipated discounts and write-offs of uncollectible accounts receivable ÷ Accounts receivable, trade, gross
= 100 × ÷ =
- Allowance for doubtful accounts
- The allowance for doubtful accounts showed a moderate increase from 24,610 thousand US dollars in 2018 to 28,837 thousand US dollars in 2021, followed by a decrease to 26,001 thousand US dollars in 2022. This suggests a period of rising estimated uncollectible amounts until 2021, with a subsequent decline in the provision in 2022.
- Accounts receivable, trade, gross
- Gross trade accounts receivable displayed a generally increasing trend over the analyzed period. Starting at 618,755 thousand US dollars in 2018, the balance decreased slightly in 2019 to 593,475 thousand US dollars, then rose significantly each subsequent year reaching 737,204 thousand US dollars by the end of 2022. This increase could reflect higher sales on credit or extended credit terms.
- Allowance as a percentage of gross accounts receivable
- The allowance as a percentage of gross accounts receivable fluctuated during the period, starting at 3.98% in 2018, increasing to a peak of 4.21% in 2019, declining to 3.9% in 2020, rising again to 4.12% in 2021, and then decreasing to 3.53% in 2022. This pattern indicates variable assessment of credit risk relative to the size of receivables, with the lowest reserve percentage observed in the final year, despite the highest gross receivables amount.
- Insights
- The overall data suggests that while the company’s gross trade receivables have increased over the analyzed timeframe, the allowance for doubtful accounts has not increased proportionally in the most recent year. The reduction in the allowance percentage in 2022 could imply improved credit quality or more effective collection practices. However, the fluctuations over the years indicate a dynamic environment regarding credit risk assessment.