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 loss ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for credit loss decreased overall from 2021 to 2025, though with some fluctuation. Simultaneously, accounts receivable, gross, exhibited a consistent decline over the same period. The relationship between these two figures, as expressed by the allowance as a percentage of gross accounts receivable, reveals a more nuanced pattern.
- Allowance for Credit Loss
- The allowance for credit loss began at US$771 million in 2021 and decreased to US$588 million in 2022, representing a substantial reduction. This downward trend continued to US$499 million in 2023 and further to US$375 million in 2024, reaching its lowest point during the analyzed period. A slight increase was observed in 2025, with the allowance rising to US$429 million.
- Accounts Receivable, Gross
- Accounts receivable, gross, experienced a significant decrease from US$18,342 million in 2021 to US$12,054 million in 2022. This decline persisted in subsequent years, reaching US$10,788 million in 2023, US$10,013 million in 2024, and finally US$9,272 million in 2025. The rate of decrease appeared to moderate from 2023 onwards.
- Allowance as a Percentage of Accounts Receivable, Gross
- In 2021, the allowance for credit loss represented 4.20% of gross accounts receivable. This percentage increased to 4.88% in 2022, coinciding with the substantial decrease in gross receivables. The percentage then decreased to 4.63% in 2023 and further to 3.75% in 2024, reflecting the continued decline in both the allowance and gross receivables, but a more pronounced decrease in the allowance. The percentage increased again in 2025, returning to 4.63%, mirroring the increase in the allowance amount.
The initial decrease in the allowance for credit loss may indicate improved credit quality or a more optimistic outlook on collectability. However, the subsequent increase in 2025 warrants further investigation. The fluctuating percentage suggests a dynamic relationship between the allowance and accounts receivable, potentially influenced by changes in credit policies, economic conditions, or collection efforts. The overall decline in gross accounts receivable suggests a reduction in credit sales or more effective collection practices.