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: 2026-07-31), 10-K (reporting date: 2025-07-31), 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31).
1 2026 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × 4 ÷ 3,633 = 0.11%
An analysis of the credit loss provisions relative to gross accounts receivable reveals a significant divergence between the growth of credit sales and the estimated risk of default. While gross accounts receivable have expanded consistently over the observed period, the allowance for credit losses has remained relatively flat before experiencing a sharp decline in the final period.
- Gross Accounts Receivable Growth
- A sustained upward trajectory is observed in gross accounts receivable, which increased from 1,252 million dollars in July 2021 to 3,633 million dollars by July 2026. This represents a substantial expansion of the credit extended to customers, reflecting increased sales volume or a shift in credit terms.
- Allowance for Credit Losses Trend
- The allowance for credit losses exhibited relative stability between 2021 and 2025, fluctuating within a narrow range of 8 to 11 million dollars. However, a significant reduction occurred in July 2026, where the allowance dropped to 4 million dollars, the lowest level in the analyzed period.
- Allowance as a Percentage of Gross Receivables
- The ratio of the allowance to gross accounts receivable demonstrates a consistent and sharp downward trend. Starting at 0.89% in July 2021, the ratio declined steadily to 0.29% by July 2024, with a marginal increase to 0.33% in 2025, before falling to a minimum of 0.11% in July 2026.
The combination of rapidly increasing gross receivables and a decreasing allowance ratio indicates a marked improvement in the perceived credit quality of the receivables portfolio. This suggests either a higher creditworthiness of the customer base or a more efficient internal collection process, as the company is reserving significantly less capital for potential bad debts despite a much larger volume of outstanding receivables.
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