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: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).
1 2022 Calculation
Allowance as a percentage of trade accounts receivable, gross = 100 × Allowance for credit losses ÷ Trade accounts receivable, gross
= 100 × ÷ =
- Allowance for credit losses
- The allowance for credit losses exhibited a fluctuating trend over the analyzed period. Initially, it decreased from 14,336 thousand US dollars in mid-2017 to 8,874 thousand US dollars by mid-2019, indicating a reduction in expected credit losses. However, this was followed by an increase in 2020 and 2021, reaching 12,078 thousand US dollars, before declining again to 9,942 thousand US dollars in mid-2022. This pattern suggests adjustments in credit risk assessments, possibly in response to changing economic conditions or customer creditworthiness.
- Trade accounts receivable, gross
- The gross trade accounts receivable showed an overall increasing trend with some variability. Starting at approximately 1,945 million US dollars in 2017, the value rose to 2,155 million by mid-2018, then slightly declined in mid-2019 and more significantly in 2020 to around 1,866 million, likely reflecting a reduction in sales or tighter credit policies during that period. Subsequently, the receivables increased again, reaching a peak of approximately 2,351 million US dollars by mid-2022, indicating growth in sales or extended credit terms in the latest year.
- Allowance as a percentage of trade accounts receivable, gross
- The allowance as a percentage of gross trade accounts receivable decreased from 0.74% in mid-2017 to 0.41% in mid-2019, reflecting a reduction in the relative provision for credit losses despite some decline in absolute allowance values. This ratio increased to 0.62% in mid-2020, possibly indicating increased credit risk or conservative provisioning during that period, coinciding with the decline in receivables. Then, it declined again to 0.42% in mid-2022, suggesting improved credit conditions or more accurate estimation of credit losses relative to the asset base.