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: 2026-05-31), 10-K (reporting date: 2025-05-31), 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).
1 2026 Calculation
Allowance as a percentage of receivables, gross = 100 × Allowance for credit losses ÷ Receivables, gross
= 100 × 510 ÷ 13,182 = 3.87%
An analysis of credit loss provisions and gross receivables over the six-year period from May 31, 2021, to May 31, 2026, reveals a non-linear relationship between the volume of receivables and the allowances established for credit losses. While gross receivables experienced a period of contraction followed by a recovery, the allowance for credit losses generally trended upward, suggesting a shift in the estimated risk profile of the receivables portfolio.
- Allowance for Credit Losses Trend
- The nominal value of the allowance for credit losses exhibited a general upward trajectory, increasing from US$ 358 million in 2021 to US$ 510 million by 2026. A notable spike occurred in 2023, where the allowance rose to US$ 472 million from US$ 340 million in the previous year. This peak was followed by a period of relative stabilization between 2024 and 2025, before reaching its highest point in 2026.
- Gross Receivables Volatility
- Gross receivables followed a U-shaped pattern. A steady decline was observed from May 31, 2021, through May 31, 2024, with balances falling from US$ 12,427 million to a low of US$ 10,523 million. Following this trough, a strong recovery trend emerged, with receivables expanding to US$ 13,182 million by May 31, 2026, exceeding the initial 2021 levels.
- Allowance as a Percentage of Gross Receivables
- The ratio of the allowance to gross receivables provides insight into the perceived credit quality of the asset base. This percentage remained relatively stable and low in 2021 and 2022, at 2.88% and 2.79%, respectively. A significant increase to 4.43% was recorded in 2023, indicating a heightened expectation of credit losses relative to the total receivables balance. While this ratio moderated to 3.71% by 2025, it remained higher than the 2021-2022 baseline, concluding at 3.87% in 2026.
The divergence observed in 2023 is particularly significant, as the allowance for credit losses increased sharply despite a concurrent decrease in gross receivables. This suggests that the increase in the provision was driven by an increase in the estimated risk of default rather than a simple increase in the volume of credit extended. The subsequent stabilization and growth in receivables through 2026, coupled with a sustained higher allowance percentage, indicate a more conservative approach to credit loss estimation compared to the start of the analyzed period.
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