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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- Balance Sheet: Assets
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- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2016
- Return on Equity (ROE) since 2016
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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 × ÷ =
The financial data over the five-year period reveals several notable patterns regarding accounts receivable and related allowances.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts started at 1,000 thousand USD in 2020 and significantly decreased over the next three years to a low of 100 thousand USD by 2022 and 2023. However, in the most recent year, 2024, this allowance sharply increased to 1,200 thousand USD, surpassing the initial value from 2020.
- Accounts Receivable, Gross
- Gross accounts receivable demonstrated a steady and substantial increase throughout the period. It rose from 30,721 thousand USD in 2020 to 124,997 thousand USD in 2024, more than quadrupling over five years. Notably, the increases are progressive, with a particularly large jump between 2022 and 2024.
- Allowance as a Percentage of Gross Accounts Receivable
- This percentage exhibited a distinct downward trend from 3.26% in 2020 to a low of 0.15% in 2023, indicating that the allowance for doubtful accounts was becoming a smaller fraction of the growing accounts receivable base. However, in 2024, this ratio rose to 0.96%, signaling a relative increase in the allowance against the sizeable receivable balance.
Overall, the data suggests rapidly expanding accounts receivable, indicating growth in sales or credit extension. The decreasing allowance ratio until 2023 might reflect improved credit quality or collection efficiency during that period. The sudden increase in both the allowance for doubtful accounts and the allowance ratio in 2024 could indicate a reassessment of credit risk or expectations of higher credit losses amid the significant increase in receivables.