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%
An analysis of credit risk management reveals a significant escalation in both the absolute value and the relative proportion of credit loss allowances between 2020 and 2021. While gross receivables remained relatively stable from 2017 through 2020, there was a substantial increase in the balance during the final year of the observed period.
- Gross Receivables Trend
- Gross receivables exhibited minor fluctuations between 2017 and 2020, ranging from a high of 324.5 million USD in 2018 to a low of 288.0 million USD in 2020. However, a sharp upward trajectory occurred in 2021, with gross receivables rising to 421.5 million USD, representing an increase of approximately 46.3% over the previous year.
- Credit Loss Allowance Expansion
- The credit loss allowance grew aggressively from 3.87 million USD in 2020 to 13.41 million USD in 2021. This increase of approximately 246.7% far outpaced the growth rate of the gross receivables, indicating a more conservative valuation of recoverable assets or a perceived increase in credit risk.
- Allowance Ratio Analysis
- The allowance as a percentage of gross receivables more than doubled, rising from 1.34% in 2020 to 3.18% in 2021. This expansion in the ratio suggests that a larger portion of the total receivables balance was deemed potentially uncollectible, reflecting a shift in the credit risk profile or a modification in the methodology used to estimate expected credit losses.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?