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.
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- Analysis of Profitability Ratios
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2020-05-31).
1 2025 Calculation
Allowance as a percentage of receivables, gross = 100 × Allowance for credit losses ÷ Receivables, gross
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses exhibited an overall increasing trend from 2020 through 2025. Starting at US$175 million in 2020, it rose substantially to US$358 million in 2021. After a slight decline to US$340 million in 2022, the allowance increased again, peaking at US$472 million in 2023 before modestly decreasing and stabilizing around US$436 million and US$438 million in 2024 and 2025, respectively. This pattern suggests a cautious approach toward credit risk, with a notable buildup in reserves particularly between 2020 and 2023.
- Receivables, Gross
- Gross receivables peaked in 2021 at US$12,427 million, reflecting an increase from US$10,277 million in 2020. Subsequently, the amounts dropped steadily over the next two years to US$12,203 million in 2022 and US$10,660 million in 2023. A slight further decrease to US$10,523 million was observed in 2024, followed by a rebound to US$11,806 million in 2025. The decline from 2021 to 2024 could indicate tightening credit policies or reduced sales on credit, whereas the uptick in 2025 may suggest an expansion or recovery phase in credit sales.
- Allowance as a Percentage of Gross Receivables
- The ratio of allowance to gross receivables reflected a rising trend from 1.7% in 2020 to 4.43% in 2023, signaling an escalating proportion of credit loss reserves relative to the outstanding receivables. After peaking in 2023, this ratio declined to 4.14% in 2024 and further to 3.71% by 2025. The increase over the initial years may imply growing concerns about collection risks or deteriorating credit quality, followed by a moderate easing of such concerns in the later years evidenced by the reduction in the ratio.