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: 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), 10-K (reporting date: 2019-05-31).
1 2024 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for uncollectible accounts receivable ÷ Accounts receivable, gross
= 100 × ÷ =
The analysis of the financial data over the six-year period reveals several notable trends related to accounts receivable and the associated allowance for uncollectible accounts.
- Allowance for Uncollectible Accounts Receivable
- The allowance experienced significant fluctuation with a marked peak in 2020 at US$214 million, significantly higher than the US$30 million reported in 2019. This figure decreased substantially in subsequent years, stabilizing around US$34-35 million from 2022 to 2024.
- Gross Accounts Receivable
- Gross accounts receivable showed variability with a decline from 2019 to 2020, falling from US$4,302 million to US$2,963 million. From 2020 onwards, the amount increased, peaking at US$4,701 million in 2022. A slight decline was observed in 2023 before rising again to US$4,462 million in 2024.
- Allowance as a Percentage of Gross Accounts Receivable
- This ratio reflects the relationship between the allowance and the gross receivables, indicating the level of expected uncollectibility. The percentage rose sharply in 2020 to 7.22%, which correlates with the spike in the allowance despite the reduced gross receivables. From 2021 onwards, the percentage declined sharply and remained below 1%, ranging from 0.72% to 0.84% through 2024, suggesting improved expectations of receivable collectibility or more conservative estimates in recent years.
Overall, the data suggests a cautious approach was taken in 2020 regarding credit risk, likely reflecting heightened uncertainty or increased risk of non-collection in that period. The subsequent return to lower allowance levels and percentages indicates an improvement in receivables quality or risk assessment stability in the following years. Gross receivables recovered after 2020, showing growth and a trend towards normalization by 2024.