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: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30).
1 2025 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowance for doubtful accounts
- The allowance for doubtful accounts shows a fluctuating trend over the six-year period. Initially, it decreased from 788 million USD in 2020 to a low of 633 million USD in 2022. However, from 2023 onwards, it increased steadily, reaching 944 million USD by 2025. This suggests a renewed conservative approach or adjustment in the anticipated credit losses in later years.
- Accounts receivable, gross
- Gross accounts receivable exhibit a consistent and substantial increase throughout the period. Starting at 32,799 million USD in 2020, the amount increased each year, peaking at 70,849 million USD in 2025. This steady growth indicates expansion in sales or credit extended to customers.
- Allowance as a percentage of accounts receivable, gross
- The allowance as a percentage of gross accounts receivable has generally declined from 2.4% in 2020 to a low point of 1.32% in 2023, reflecting a reduced relative risk or improved credit quality of receivables during this period. Post-2023, the ratio modestly increased to 1.44% in 2024 and slightly declined again to 1.33% in 2025, indicating minor fluctuations in credit risk management relative to the size of receivables but overall maintaining a lower proportion compared to 2020.
- Overall Assessment
- The data suggests that while the company’s accounts receivable have expanded significantly, the proportion of allowance for doubtful accounts relative to these receivables has decreased. This may imply improved credit collection processes or customer creditworthiness. However, the absolute allowance amount’s uptrend since 2023 indicates vigilance in recognizing potential credit losses amid increasing receivables.