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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- Statement of Comprehensive Income
- Cash Flow Statement
- Analysis of Solvency Ratios
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Equity (ROE) since 2005
- Current Ratio since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Sales (P/S) since 2005
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2022-12-31), 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).
1 2022 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
The analysis of the financial data reveals several trends concerning the accounts receivable and related allowances over the five-year period.
- Allowance for Doubtful Accounts
- This figure shows a general upward trend from 2,378 thousand US dollars in 2018 to 10,343 thousand US dollars in 2022. The allowance increased significantly between 2018 and 2020, reaching its peak in 2020 at 10,239 thousand US dollars. It then slightly decreased in 2021 to 9,245 thousand US dollars, before rising again in 2022.
- Accounts Receivable, Gross
- Gross accounts receivable exhibited a consistent growth trajectory over the period. Starting at 441,387 thousand US dollars in 2018, it increased each year, peaking at 906,443 thousand US dollars in 2021. A slight decline occurred in 2022, with the value decreasing to 870,028 thousand US dollars, indicating a marginal reduction after years of strong growth.
- Allowance as a Percentage of Accounts Receivable, Gross
- The allowance ratio showed variability, with an increase from 0.54% in 2018 to a peak of 1.53% in 2020. This was followed by a decrease to 1.02% in 2021, then a modest increase again to 1.19% in 2022. These fluctuations suggest that while the absolute allowance amounts generally grew, the proportion relative to gross accounts receivable experienced periods of both tightening and loosening.
Overall, the data indicate that the company has been increasing its provisions for doubtful accounts in nominal terms, reflecting possibly an increased emphasis on risk management or changing credit quality. Despite the growth in gross accounts receivable, the allowance as a percentage of receivables has not shown a consistent upward trend, which may suggest improved collection efficiencies or adjustments in risk assessment methodologies. The slight decline in gross accounts receivables in the final year may warrant further investigation to understand the underlying causes.