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: 2025-12-31), 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 accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for credit losses decreased significantly between 2021 and 2022, and continued to decline through 2023. A slight increase was observed in 2024, followed by a more substantial rise in 2025. Simultaneously, accounts receivable, gross, exhibited consistent growth throughout the analyzed period. Consequently, the allowance as a percentage of accounts receivable, gross, demonstrates a decreasing trend, with a recent stabilization and slight increase towards the end of the period.
- Allowance for Credit Losses
- The allowance for credit losses began at US$39 million in 2021. It decreased to US$20 million in 2022, and further to US$17 million in 2023, representing the lowest point in the observed period. In 2024, the allowance increased to US$22 million, and continued to rise to US$45 million in 2025. This suggests a potential shift in credit risk assessment or collection experience towards the end of the period.
- Accounts Receivable, Gross
- Accounts receivable, gross, increased steadily from US$388 million in 2021 to US$1,153 million in 2025. The growth was US$32 million between 2021 and 2022, US$130 million between 2022 and 2023, US$204 million between 2023 and 2024, and US$399 million between 2024 and 2025. This indicates a substantial expansion in sales or a lengthening of the accounts receivable collection cycle.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio decreased from 10.05% in 2021 to 4.76% in 2022, and continued to decline to 3.09% in 2023. It remained relatively stable at 2.92% in 2024, before increasing slightly to 3.90% in 2025. The consistent decline suggests improving credit quality or a more optimistic assessment of collectability, while the recent increase warrants further investigation.
The increasing accounts receivable alongside a relatively low and recently stabilizing allowance percentage suggests a need for continued monitoring of collection efforts and potential credit risk exposure. The significant increase in the allowance in 2025, coupled with the continued growth in gross accounts receivable, should be examined to determine the underlying causes and potential impact on future financial performance.