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 and notes receivable, gross = 100 × Allowance ÷ Accounts and notes receivable, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable exhibited a fluctuating pattern over the five-year period. Initially, the allowance increased significantly before declining steadily. Simultaneously, gross accounts and notes receivable demonstrated an overall increase followed by a decrease. The ratio representing the allowance as a percentage of gross receivables consistently decreased throughout the period, indicating a diminishing proportion of potential uncollectible accounts relative to total receivables.
- Allowance for Doubtful Accounts
- The allowance began at US$303 million in 2021 and rose substantially to US$457 million in 2022. This represents a 50.8% increase. Subsequently, the allowance decreased each year, falling to US$301 million in 2023, US$259 million in 2024, and finally reaching US$176 million in 2025. This represents a 61.4% decrease from its peak in 2022 to its value in 2025.
- Gross Accounts and Notes Receivable
- Gross accounts and notes receivable increased from US$18,722 million in 2021 to US$20,913 million in 2022, a rise of 11.7%. A slight decrease to US$20,222 million was observed in 2023. The value then increased again to US$20,943 million in 2024 before declining to US$18,251 million in 2025, representing a 12.8% decrease from its 2024 peak.
- Allowance as a Percentage of Gross Receivables
- This ratio started at 1.62% in 2021 and increased to 2.19% in 2022, coinciding with the increase in the allowance and gross receivables. The ratio then decreased consistently over the remaining period, reaching 1.49% in 2023, 1.24% in 2024, and finally 0.96% in 2025. This consistent decline suggests a decreasing risk of uncollectible accounts relative to the overall level of receivables.
The observed trends suggest a potential tightening of credit policies or improved collection efforts, contributing to the decreasing allowance percentage despite fluctuations in the gross receivables balance. The significant decrease in the allowance in later years, coupled with the decline in gross receivables in 2025, warrants further investigation into the underlying factors driving these changes.