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 fluctuating behavior over the five-year period. Initially stable, the allowance increased significantly in 2024 before decreasing again in 2025. Simultaneously, gross accounts and notes receivable also demonstrated variability, with a general decline observed from 2023 to 2025. The relationship between the allowance and gross receivables, expressed as a percentage, reveals a growing trend in potential credit risk, peaking in 2024, followed by a moderation in 2025.
- Allowance for Doubtful Accounts
- The allowance remained constant at US$2 million in 2021 and 2022. A moderate increase to US$3 million was noted in 2023. A substantial rise occurred in 2024, reaching US$7 million, before declining to US$4 million in 2025. This suggests a potential shift in credit risk assessment or collection experiences during these periods.
- Gross Accounts and Notes Receivable
- Gross accounts and notes receivable increased from US$6,545 million in 2021 to US$7,077 million in 2022. A significant decrease was observed in 2023, falling to US$5,464 million. The balance partially recovered in 2024 to US$6,628 million, but then decreased again in 2025 to US$5,817 million. These fluctuations may be linked to sales volume, credit terms, or economic conditions.
- Allowance as a Percentage of Gross Receivables
- This ratio remained consistent at 0.03% in 2021 and 2022. An increase to 0.05% was recorded in 2023. The most notable change was in 2024, with the ratio rising to 0.11%, indicating a significantly higher proportion of receivables potentially at risk of non-collection. The ratio decreased to 0.07% in 2025, suggesting a partial mitigation of the increased risk observed in the prior year. The increase in 2024, coupled with the subsequent decrease in 2025, warrants further investigation into the underlying factors driving these changes.
The observed trends suggest a dynamic relationship between the allowance for doubtful accounts and the overall level of gross receivables. The significant increase in the allowance percentage in 2024, followed by a decrease in 2025, indicates potential changes in credit policies, collection efforts, or the creditworthiness of customers.