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: 2025-12-27), 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25).
1 2025 Calculation
Allowance as a percentage of accounts and notes receivable, gross = 100 × Allowance ÷ Accounts and notes receivable, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable exhibited fluctuating behavior over the five-year period. Initially, the allowance increased modestly from $147 million in 2021 to $150 million in 2022, before rising to $175 million in 2023. A significant increase was then observed in 2024, reaching $356 million, followed by a decrease to $230 million in 2025.
Gross accounts and notes receivable demonstrated a generally increasing trend throughout the period. From $8,827 million in 2021, the balance grew to $10,313 million in 2022 and $10,990 million in 2023. A slight decrease to $10,689 million occurred in 2024, but then increased again to $11,736 million in 2025.
- Allowance as a Percentage of Gross Receivables
- This ratio began at 1.67% in 2021, decreasing to 1.45% in 2022. A slight recovery to 1.59% was noted in 2023. The ratio experienced a substantial increase in 2024, reaching 3.33%, indicating a considerably larger provision for potential bad debts relative to outstanding receivables. The ratio then decreased significantly in 2025, falling to 1.96%.
The substantial increase in the allowance and its corresponding percentage in 2024 warrants further investigation. This could be attributable to a change in credit policies, increased economic uncertainty impacting customer payment ability, or a specific large account becoming doubtful. The subsequent decrease in both the allowance amount and percentage in 2025 suggests a potential reversal of these factors, perhaps due to successful collection efforts or improved economic conditions. The overall trend suggests a dynamic approach to managing credit risk, with adjustments made to the allowance based on evolving circumstances.