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: 2026-07-25), 10-K (reporting date: 2025-07-26), 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31).
1 2026 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit loss ÷ Accounts receivable, gross
= 100 × 78 ÷ 7,548 = 1.03%
An analysis of credit loss provisions from 2021 to 2026 reveals a general improvement in the quality of accounts receivable, characterized by a reduction in the relative amount set aside for doubtful accounts despite an overall increase in gross receivables.
- Gross Accounts Receivable Trends
- Gross accounts receivable exhibited an upward trajectory over the period, increasing from 5,875 million USD in 2021 to 7,548 million USD by 2026. While a contraction was observed in 2023, the long-term trend indicates a growth in the total volume of outstanding credit extended to customers.
- Allowance for Credit Loss Movement
- The absolute value of the allowance for credit loss decreased from 109 million USD in 2021 to 78 million USD in 2026. A significant reduction occurred between 2021 and 2022, followed by a period of relative stability until a further decline to a low of 69 million USD in 2025.
- Credit Risk Ratio Analysis
- The allowance as a percentage of gross accounts receivable demonstrates a consistent downward trend, falling from 1.86% in 2021 to 1.03% in 2026. This decline indicates a reduction in the expected loss rate relative to total receivables, suggesting either an improvement in the creditworthiness of the customer base or a shift toward more conservative credit granting policies.
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Allowance for Credit Losses
Based on: 10-K (reporting date: 2026-07-25), 10-K (reporting date: 2025-07-26), 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31).
1 2026 Calculation
Allowance as a percentage of gross financing receivables less unearned income = 100 × Allowance for credit loss ÷ Gross financing receivables less unearned income
= 100 × 50 ÷ 8,315 = 0.60%
A consistent downward trajectory is observed in the allowance for credit losses over the analyzed period. The reserve decreased from US$127 million in 2021 to US$50 million by 2025, maintaining that level through 2026. This represents a significant reduction in the absolute amount of capital set aside to cover potential credit defaults.
- Gross Financing Receivables Trends
- Gross financing receivables less unearned income exhibited a steady decline from 2021 to 2025, falling from US$9,288 million to a low of US$6,511 million. A reversal of this trend occurred in 2026, with the balance increasing to US$8,315 million, indicating a expansion in the financing portfolio during the final year of the period.
- Credit Loss Ratio Interpretation
- The allowance as a percentage of gross financing receivables peaked at 1.58% in 2022 before entering a continuous decline. By 2026, the ratio reached its lowest point of 0.60%. The sustained decrease in this ratio suggests an improvement in the underlying credit quality of the receivables or a shift toward more optimistic loss projections.
- Correlation Between Exposure and Reserves
- Between 2021 and 2025, the reduction in the credit loss allowance outpaced the reduction in gross financing receivables, leading to a lower percentage of coverage. The divergence became more pronounced in 2026; while the total volume of financing receivables increased significantly, the allowance remained stagnant at US$50 million, resulting in the sharpest year-over-year decline in the credit loss ratio.
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