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: 2026-08-31), 10-K (reporting date: 2025-08-31), 10-K (reporting date: 2024-08-31), 10-K (reporting date: 2023-08-31), 10-K (reporting date: 2022-08-31), 10-K (reporting date: 2021-08-31).
1 2026 Calculation
Allowance as a percentage of receivables and contract assets, gross = 100 × Allowance for credit losses ÷ Receivables and contract assets, gross
= 100 × 41,670 ÷ 16,369,685 = 0.25%
The analysis of credit loss provisions reveals a period of substantial expansion in gross receivables coupled with a fluctuating, yet generally controlled, allowance for credit losses. While total receivables grew consistently over the six-year period, the allowance for credit losses exhibited a U-shaped trend, decreasing initially before rising significantly in the final two years.
- Gross Receivables and Contract Assets Growth
- A consistent upward trajectory is observed in gross receivables and contract assets, which increased from approximately 9.76 billion USD in 2021 to 16.37 billion USD by 2026. This represents a sustained and significant growth in the volume of outstanding credit extended to clients throughout the analyzed timeframe.
- Movement in Allowance for Credit Losses
- The absolute value of the allowance for credit losses declined from 32.2 million USD in 2021 to a low of 25.8 million USD in 2022. Following this period, a steady increase occurred, culminating in a sharp rise to 41.7 million USD by 2026. This indicates a substantial increase in the reserves set aside for potential defaults toward the end of the period.
- Credit Loss Ratio Analysis
- The allowance as a percentage of gross receivables experienced a notable decrease from 0.33% in 2021 to a minimum of 0.20% in 2024. This contraction suggests that for several years, the growth in receivables far outpaced the growth in credit risk provisions. However, this trend reversed in 2025 and 2026, with the ratio climbing to 0.25% by August 31, 2026, signaling a shift toward more conservative provisioning or a deterioration in the expected credit quality of the receivables portfolio.
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