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: 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 receivables, gross = 100 × Credit loss allowance ÷ Receivables, gross
= 100 × 13,411 ÷ 421,478 = 3.18%
- Receivables, gross
- The gross receivables exhibit a generally stable trend from 2017 to 2020, fluctuating slightly between approximately 288 million and 325 million. However, there is a notable increase in 2021, where gross receivables rise significantly to around 421 million, indicating a substantial growth in amounts owed to the company in that year.
- Credit loss allowance
- Data for credit loss allowance is available only for 2020 and 2021. It reveals a sizable increase from approximately 3.9 million in 2020 to 13.4 million in 2021. This indicates the company has increased its provision for potential credit losses substantially within that one-year period.
- Allowance as a percentage of receivables, gross
- The allowance percentage is recorded only for 2020 and 2021 and shows an upward trend from 1.34% to 3.18%. This indicates that, relative to the total gross receivables, the company has reserved a larger proportion for potential losses in 2021 compared to 2020. This trend suggests a more cautious approach to credit risk management amid increasing receivables.
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