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: 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), 10-K (reporting date: 2018-02-03).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for expected credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for expected credit losses
- The allowance for expected credit losses showed an overall upward trend from 2018 to 2023. Starting at $1,800 thousand in 2018, it increased steadily each year, peaking at $3,600 thousand in 2022 before slightly declining to $3,400 thousand in 2023. This indicates a growing recognition of potential credit risk, with a moderate decrease in the last reported year.
- Accounts receivable, gross
- Gross accounts receivable exhibited a consistent growth trajectory over the six-year period. Beginning at $33,212 thousand in 2018, the figure rose annually, reaching $62,774 thousand in 2021. There was a slight dip to $61,514 thousand in 2022, followed by a marginal increase to $63,163 thousand in 2023. Despite minor fluctuations, the overall increase reflects expanding sales or credit extended.
- Allowance as a percentage of accounts receivable, gross
- The allowance as a percentage of gross accounts receivable experienced fluctuations without a definitive directional trend. It decreased from 5.42% in 2018 to a low of 4.3% in 2020, signifying a lower relative provision for credit losses at that time. Subsequently, the ratio rose to 5.85% in 2022, the highest in the period, before declining moderately to 5.38% in 2023. These variations suggest adjustments in expected credit losses relative to the size of receivables, potentially reflecting changes in credit risk assessment or economic conditions.