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: 2024-03-31), 10-K (reporting date: 2023-03-31), 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 1,200 ÷ 124,997 = 0.96%
The financial data reveals a significant expansion in credit exposure coupled with fluctuating expectations regarding collectability over the five-year period ending March 31, 2024. While gross receivables grew aggressively, the allowance for doubtful accounts followed a non-linear trajectory, indicating shifts in credit risk assessment.
- Gross Accounts Receivable Growth
- A consistent upward trend in gross accounts receivable is observed, increasing from US$ 30,721 thousand in 2020 to US$ 124,997 thousand in 2024. The most pronounced growth occurred between 2023 and 2024, where the balance increased by approximately 83.8%, suggesting a rapid scaling of sales volume or a broadening of credit terms extended to customers.
- Allowance for Doubtful Accounts Dynamics
- The absolute value of the allowance for doubtful accounts experienced a sharp decline from US$ 1,000 thousand in 2020 to a low of US$ 100 thousand in 2022 and 2023. However, this trend reversed abruptly in 2024, with the allowance spiking to US$ 1,200 thousand. This twelve-fold increase from the prior year suggests a sudden adjustment in the estimation of uncollectible accounts, potentially linked to the rapid increase in total receivables.
- Credit Risk Ratio Analysis
- The allowance as a percentage of gross accounts receivable demonstrates significant volatility. The ratio decreased from 3.26% in 2020 to a minimum of 0.15% in 2023, implying a period of perceived high credit quality or an increasingly optimistic recovery outlook. In 2024, the ratio rose to 0.96%. Although this represents an increase in perceived risk compared to 2023, the ratio remains substantially lower than the 2020 baseline, indicating that the current allowance remains conservative relative to historical levels despite the increase in gross exposure.
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?