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: 2025-11-02), 10-K (reporting date: 2024-11-03), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-11-01).
1 2025 Calculation
Allowance as a percentage of trade accounts receivable, gross = 100 × Allowances for doubtful accounts ÷ Trade accounts receivable, gross
= 100 × ÷ =
- Trade Accounts Receivable Gross
- The gross trade accounts receivable demonstrated a consistent and significant upward trend over the analyzed periods. Starting at 2,325 million US dollars, the figure increased progressively each year, reaching 7,148 million US dollars by the final period. This growth indicates an expanding volume of credit sales or longer collections period.
- Allowances for Doubtful Accounts
- Allowances for doubtful accounts showed fluctuations without a clear upward or downward trend. The allowance amount began at 28 million US dollars and experienced a notable decline to 1 million in one period, followed by some recovery to 11 million, then a decrease again to 3 million. This indicates a variable assessment of credit risk or changes in credit policies over time.
- Allowance as a Percentage of Trade Accounts Receivable Gross
- The allowance as a percentage of gross trade accounts receivable exhibited a generally low and fluctuating pattern. Starting at 1.2%, the percentage dropped significantly to 0.03% at one point and oscillated between 0.04% and 0.25% in subsequent periods. This suggests that, despite the increase in receivables, the reserve for doubtful accounts remains minimal relative to gross receivables, possibly reflecting confidence in receivable collectability or aggressive revenue growth.
- Overall Observations
- The data reveals strong growth in gross trade accounts receivable, which may indicate increased sales or extended credit terms. The allowance for doubtful accounts does not increase proportionally, maintaining a relatively low ratio to gross receivables. These patterns suggest effective credit risk management or optimistic assumptions regarding customer payment behavior but may also point to potential underestimation of credit losses if economic conditions change.