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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Allowance for Doubtful Accounts Receivable
Based on: 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), 10-K (reporting date: 2020-08-31).
1 2025 Calculation
Allowance as a percentage of receivables and contract assets, gross = 100 × Allowance for credit losses ÷ Receivables and contract assets, gross
= 100 × ÷ =
- Allowance for Credit Losses
- The allowance for credit losses shows a decreasing trend from 40,277 thousand USD in 2020 to 25,786 thousand USD in 2022. However, starting from 2023, this figure demonstrates a gradual increase, reaching 32,247 thousand USD by 2025.
- Receivables and Contract Assets, Gross
- Gross receivables and contract assets exhibit consistent growth over the years, rising steadily from 7,887,169 thousand USD in 2020 to 15,017,320 thousand USD in 2025. This upward trajectory indicates expanding business activity or revenues that impact accounts receivable balances.
- Allowance as a Percentage of Receivables and Contract Assets, Gross
- The allowance as a percentage of gross receivables and contract assets has steadily declined from 0.51% in 2020 to 0.20% in 2024, with a slight increase to 0.21% projected in 2025. This declining ratio suggests improved credit quality or more conservative provisioning relative to the growth in gross receivables.
- Overall Analysis
- While the gross receivables have nearly doubled over the six-year period, the allowance for credit losses initially decreased and then started to increase slightly after 2022. The allowance as a percentage of receivables has significantly decreased, implying an overall improvement in the quality of receivables or more effective credit risk management. The recent uptick in allowance amounts may reflect a cautious approach given the growing receivables base or changing economic conditions that could affect collectability.