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: 2025-10-31), 10-K (reporting date: 2024-10-31), 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31).
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 exhibited an overall increasing trend from 2020 to 2025. While fluctuating slightly in the earlier years, a significant increase is observed from 2022 onwards. Accounts receivable, gross, also demonstrated variability, with a decrease in 2021 followed by increases in subsequent years. The relationship between these two items, as reflected in the allowance as a percentage of accounts receivable, gross, reveals a strengthening of the allowance relative to receivables over the period.
- Allowance for Credit Losses
- The allowance for credit losses began at US$28,564 thousand in 2020, increasing to US$30,680 thousand in 2021. A slight decrease was noted in 2022, falling to US$29,553 thousand. However, from 2022 to 2025, the allowance experienced substantial growth, reaching US$88,959 thousand. This represents a nearly threefold increase over the 2022 level.
- Accounts Receivable, Gross
- Accounts receivable, gross, decreased from US$809,273 thousand in 2020 to US$599,181 thousand in 2021. It then increased to US$825,644 thousand in 2022, and continued to rise, reaching US$989,689 thousand in 2023 and US$985,478 thousand in 2024. A significant increase is observed in 2025, with accounts receivable reaching US$1,594,386 thousand.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio began at 3.53% in 2020, increasing to 5.12% in 2021. It decreased slightly to 3.58% in 2022, then rose to 4.32% in 2023 and 5.18% in 2024. The ratio continued its upward trajectory, reaching 5.58% in 2025. This indicates that the allowance for credit losses is becoming a larger proportion of the outstanding accounts receivable balance.
The substantial increase in both the allowance for credit losses and accounts receivable, gross, in the later years of the period warrants further investigation. The rising percentage suggests a potentially increasing risk of uncollectible accounts, or a more conservative approach to estimating potential bad debts. The growth in receivables may also indicate increased sales activity, but the corresponding increase in the allowance suggests a need to monitor collection efforts and credit policies.