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 accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Trade accounts receivable, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable exhibited a generally decreasing trend over the five-year period, although fluctuations were present. Simultaneously, gross trade accounts receivable also demonstrated variability. The relationship between these two figures, as indicated by the allowance as a percentage of gross trade accounts receivable, reveals shifts in the company’s assessment of credit risk.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts began at US$124 million in 2021, increased slightly to US$126 million in 2022, and then decreased to US$120 million in 2023. A further decline was observed in 2024, reaching US$113 million, before a modest increase to US$114 million in 2025. This suggests a generally conservative approach to recognizing potential bad debts, with adjustments made based on evolving economic conditions or changes in the customer base.
- Gross Trade Accounts Receivable
- Gross trade accounts receivable increased from US$4,755 million in 2021 to US$5,044 million in 2022. A significant decrease followed, with the balance falling to US$4,042 million in 2023 and further to US$3,650 million in 2024. A partial recovery was noted in 2025, with the balance rising to US$4,027 million. These fluctuations likely reflect changes in sales volume, credit terms offered to customers, and the efficiency of collection efforts.
- Allowance as a Percentage of Gross Trade Accounts Receivable
- This ratio began at 2.61% in 2021 and decreased to 2.50% in 2022, indicating a potentially improved credit quality of receivables or a more optimistic outlook on collections. The ratio then increased to 2.97% in 2023 and peaked at 3.10% in 2024, coinciding with the decline in gross receivables. This suggests a heightened perception of credit risk as receivables decreased. The ratio moderated slightly to 2.83% in 2025, potentially reflecting stabilization in the receivables portfolio or adjustments to the allowance.
Overall, the observed trends suggest a dynamic relationship between the allowance for doubtful accounts and gross trade accounts receivable. The company appears to actively manage its credit risk exposure, adjusting the allowance based on changes in the outstanding receivables balance and perceived creditworthiness of its customers.