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 trade receivables, gross = 100 × Allowance for doubtful accounts ÷ Trade receivables, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable exhibited a fluctuating pattern over the five-year period. Initially decreasing, it showed a slight increase in the most recent year observed. Simultaneously, gross trade receivables generally increased, though not consistently. The relationship between the allowance and gross receivables, expressed as a percentage, demonstrated a decreasing trend, stabilizing in the latter years.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts decreased from US$313 million in 2021 to US$241 million in 2023, representing a reduction of approximately 23%. A modest increase was then observed in 2024 to US$247 million, followed by a further increase to US$290 million in 2025. This recent rise suggests a potential shift in credit risk assessment or a change in the collectability of outstanding receivables.
- Gross Trade Receivables
- Gross trade receivables experienced a decrease from US$6,800 million in 2021 to US$6,480 million in 2022. Subsequently, they increased to US$6,806 million in 2023 and continued to rise to US$7,172 million in 2024. The most significant increase occurred between 2024 and 2025, with gross receivables reaching US$8,219 million. This growth in receivables may indicate increased sales or extended credit terms.
- Allowance as a Percentage of Gross Trade Receivables
- The allowance as a percentage of gross trade receivables decreased steadily from 4.60% in 2021 to 3.44% in 2024. This indicates that the allowance was growing at a slower rate than gross receivables. In 2025, the percentage increased slightly to 3.53%, coinciding with the increase in the allowance amount. The stabilization of this percentage in the latter years suggests a consistent approach to estimating potential bad debts relative to the overall receivables balance.
The observed trends suggest a potential easing of credit risk between 2021 and 2024, as evidenced by the declining percentage. However, the increase in both the allowance amount and the percentage in 2025 warrants further investigation to determine the underlying causes and potential implications for future financial performance.