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 exhibited an overall increasing trend from 2021 to 2023, followed by fluctuations in the subsequent two years. Simultaneously, accounts receivable, gross, consistently increased throughout the observed period. The relationship between these two items, as reflected in the allowance as a percentage of accounts receivable, gross, reveals a more nuanced pattern.
- Allowance for Credit Losses
- The allowance for credit losses increased from US$7.374 million in 2021 to US$12.826 million in 2023, representing a growth of approximately 73.8%. This suggests a proactive approach to recognizing potential uncollectible accounts as the gross accounts receivable balance grew. However, the allowance decreased to US$11.244 million in 2024 before partially recovering to US$12.199 million in 2025. This fluctuation warrants further investigation to determine the underlying causes, such as changes in credit policies, economic conditions, or collection efforts.
- Accounts Receivable, Gross
- Accounts receivable, gross, demonstrated consistent growth over the five-year period, increasing from US$2.028 million in 2021 to US$3.782 million in 2025. This indicates an expansion in sales or a lengthening of the credit terms offered to customers. The continuous increase in gross receivables necessitates a corresponding evaluation of the adequacy of the allowance for credit losses.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio initially increased from 0.36% in 2021 to 0.44% in both 2022 and 2023, indicating that the company was increasing its reserves for potential bad debts at a rate commensurate with the growth in receivables. However, the ratio declined to 0.34% in 2024 and further to 0.32% in 2025. This decrease suggests that the company may be becoming more confident in its ability to collect receivables, or that changes in the composition of receivables have reduced the perceived risk of non-payment. The declining percentage, despite the increasing absolute allowance in 2025, suggests a slower rate of reserve growth relative to the growth in receivables.
In summary, while the absolute allowance for credit losses generally increased, the decreasing trend in the allowance as a percentage of accounts receivable, gross, from 2023 to 2025 suggests a potential shift in risk assessment or collection effectiveness. Continued monitoring of these trends is recommended to ensure the adequacy of the allowance and to identify any potential impacts on financial performance.