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: 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 accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses exhibited an overall increasing trend from 2017 through 2020, rising from $2,687 thousand to a peak of $9,757 thousand. However, in 2021, this figure declined to $7,730 thousand, indicating a reduction in estimated credit risk allowances after the prior year's high point.
- Accounts Receivable, Gross
- Gross accounts receivable showed volatility over the period. Initially, there was a significant decrease from $36,364 thousand in 2017 to $16,964 thousand in 2018. Afterward, the figure gradually increased each year, reaching $34,996 thousand by the end of 2021. This pattern suggests a sharp contraction followed by sustained growth in receivables volume.
- Allowance as a Percentage of Accounts Receivable, Gross
- The allowance as a percentage of gross accounts receivable increased markedly from 7.39% in 2017 to a peak of 30.15% in 2020. This indicates a higher provision relative to receivables, suggesting increasing credit risk or more conservative loss recognition policies during this period. In 2021, the percentage decreased to 22.09%, which may imply some improvement in receivables quality or adjustments in risk assessment.
- Summary of Trends
- Overall, the data reflects an environment of increasing credit risk or tightened credit loss reserves from 2017 through 2020, as evidenced by rising allowance amounts and their proportion to gross receivables. The notable dip in gross receivables during 2018 followed by steady growth could relate to changes in business operations or collection practices. The reduction in allowance and its percentage in 2021 suggests a partial easing of credit risk concerns or improved management of receivables quality during that year.