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 Liquidity Ratios
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 2025 Calculation
Allowance as a percentage of trade receivables, gross = 100 × Allowance for doubtful accounts ÷ Trade receivables, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable exhibited an overall increasing trend between 2021 and 2025, though not consistently. Simultaneously, gross trade receivables increased significantly over the same period. The relationship between these two figures, as indicated by the allowance as a percentage of gross trade receivables, fluctuated during the analyzed timeframe.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts began at US$26 million in 2021, decreased to US$22 million in 2022, and then increased to US$28 million in 2023. Further increases were observed in 2024 and 2025, reaching US$38 million and US$43 million respectively. This suggests a growing expectation of uncollectible accounts in the later years of the period.
- Gross Trade Receivables
- Gross trade receivables demonstrated substantial growth throughout the period. Starting at US$4,921 million in 2021, they rose to US$5,585 million in 2022 and continued to increase to US$7,296 million in 2023. A slight decrease was noted in 2024, falling to US$6,820 million, before a significant jump to US$9,613 million in 2025. This indicates a considerable expansion in credit sales.
- Allowance as a Percentage of Gross Trade Receivables
- This ratio began at 0.53% in 2021, declining to 0.39% in 2022 and remaining relatively stable at 0.38% in 2023. The ratio increased to 0.56% in 2024, before decreasing slightly to 0.45% in 2025. The initial decline suggests improved collection efficiency or a lower risk profile of receivables. The subsequent increase in 2024 may indicate a change in credit terms, increased risk, or a more conservative approach to estimating bad debts, while the 2025 decrease suggests a potential stabilization or adjustment following the 2024 increase.
The increasing trend in the allowance for doubtful accounts, coupled with the substantial growth in gross trade receivables, warrants further investigation. While the percentage of the allowance relative to receivables fluctuated, the absolute increase in the allowance suggests a growing need to account for potential credit losses as sales on credit expand.