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: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).
1 2024 Calculation
Allowance as a percentage of accounts receivable, principally trade, gross = 100 × Allowance for credit losses ÷ Accounts receivable, principally trade, gross
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses experienced significant fluctuations over the periods analyzed. Beginning at $37,809 thousand in May 2019, it nearly doubled to $62,167 thousand by May 2020. Subsequently, there was a sharp decline to $12,097 thousand in May 2021, followed by a modest increase in the following years, reaching $17,914 thousand by May 2024. This suggests a volatile approach or changing expectations regarding potential credit losses during the period.
- Accounts Receivable, Principally Trade, Gross
- Gross accounts receivable showed a general upward trend over the period. Starting at $947,929 thousand in May 2019, there was a slight decrease to $932,536 thousand in 2020 and a continued decline to $913,807 thousand in 2021. From May 2021 onwards, the balance increased steadily, reaching $1,262,096 thousand in May 2024. This indicates growth in trade credit sales or extended receivables over time, particularly strong in the recent years.
- Allowance as a Percentage of Accounts Receivable, Principally Trade, Gross
- This ratio was relatively high in 2019 and 2020, with values of 3.99% and 6.67%, respectively. However, it dropped significantly in 2021 to around 1.32%, remaining fairly stable and slightly increasing to 1.42% by May 2024. The decrease and stabilization of this percentage point to improved credit quality or more conservative credit loss reserves relative to the size of accounts receivable post-2020.
- Overall Insights
- The data reveals a period of elevated credit loss provisions around 2020 that were subsequently reduced sharply, even as gross accounts receivable resumed growth from 2021 onward. The allowance as a percentage of gross receivables declined markedly after 2020, stabilizing at a lower level despite growing receivables, which may suggest enhanced collection efforts, improved customer creditworthiness, or changes in credit policy. The trends indicate a recovery and normalization in credit risk exposure following the turbulence experienced in 2020.