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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- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Solvency Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
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Allowance for Credit Losses
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 finance receivables, gross = 100 × Allowance for credit losses ÷ Finance receivables, gross
= 100 × ÷ =
The allowance for credit losses exhibited a fluctuating pattern over the five-year period. Initially, the allowance increased from 2021 to 2022, before declining in subsequent years. Simultaneously, finance receivables, gross, generally increased throughout the period, though with a decrease observed between 2021 and 2022. The relationship between the allowance and gross receivables is best understood through the allowance as a percentage of gross receivables metric, which demonstrates a clear downward trend.
- Allowance for Credit Losses (US$ in millions)
- The allowance for credit losses began at 333 in 2021, increasing to 342 in 2022. A subsequent decrease was observed, falling to 327 in 2023 and further to 262 in 2024. The allowance experienced a slight increase in 2025, reaching 277. This suggests a potential initial increase in perceived credit risk followed by a period of decreasing concern, with a minor reversal in the most recent year.
- Finance Receivables, Gross (US$ in millions)
- Finance receivables, gross, totaled 21,928 in 2021, decreasing to 21,357 in 2022. The receivables then increased steadily, reaching 22,449 in 2023, 23,029 in 2024, and 25,150 in 2025. This indicates a general expansion of credit exposure over the period, despite the initial contraction.
- Allowance as a Percentage of Finance Receivables, Gross (%)
- This ratio decreased consistently throughout the period. Starting at 1.52% in 2021, it rose to 1.60% in 2022. However, it then declined to 1.46% in 2023, 1.14% in 2024, and further to 1.10% in 2025. This downward trend suggests that, relative to the size of the finance receivables portfolio, the company has been reducing its provision for potential credit losses. This could be due to improved credit quality of the portfolio, a change in risk assessment methodologies, or other factors influencing the perceived level of credit risk.
The combination of a fluctuating allowance for credit losses and increasing finance receivables, coupled with the declining allowance percentage, warrants further investigation into the underlying drivers of these trends. Specifically, an examination of the composition of the finance receivables portfolio and the company’s credit risk management practices would be beneficial.