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: 2024-05-31), 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 × 17,914 ÷ 1,262,096 = 1.42%
The analysis of credit loss allowances reveals a period of significant volatility between 2019 and 2021, followed by a phase of stabilized growth and consistent risk management from 2022 through 2024.
- Credit Loss Allowance Volatility
- A substantial increase in the allowance for credit losses occurred in 2020, peaking at 62.17 million USD. This coincided with a sharp rise in the allowance as a percentage of gross accounts receivable, which reached 6.67%. This peak was followed by a precipitous decline in 2021, where the allowance fell to 12.10 million USD, representing a significant reduction in perceived credit risk or a substantial recovery of previously written-off accounts.
- Gross Accounts Receivable Trends
- Gross trade receivables experienced a slight decline between 2019 and 2021, reaching a low of 913.81 million USD. Subsequently, a strong upward trajectory is observed, with receivables growing to 1.26 billion USD by May 31, 2024. This trajectory suggests a steady expansion in credit sales or an increase in the volume of outstanding trade obligations over the last four fiscal years.
- Allowance Ratio Stability
- Since 2021, the allowance as a percentage of gross accounts receivable has remained stable, fluctuating within a narrow band between 1.27% and 1.42%. While the absolute dollar value of the allowance has increased from 12.10 million USD in 2021 to 17.91 million USD in 2024, the ratio indicates that credit risk is being managed proportionally to the growth of the total receivables balance.
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