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.
Paying user area
Try for free
Eaton Corp. plc pages available for free this week:
- Statement of Comprehensive Income
- Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Enterprise Value to FCFF (EV/FCFF)
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Total Asset Turnover since 2005
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Eaton Corp. plc for $24.99.
This is a one-time payment. There is no automatic renewal.
We accept:
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 receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for credit losses exhibited fluctuating behavior over the five-year period. Initially decreasing, it subsequently increased before stabilizing. Accounts receivable, gross, demonstrated a consistent upward trend throughout the period. The relationship between these two items, as expressed by the allowance as a percentage of gross accounts receivable, reveals changes in the company’s assessment of credit risk.
- Allowance for Credit Losses
- The allowance for credit losses decreased from US$42 million in 2021 to US$31 million in 2022, representing a 26% reduction. A subsequent increase was observed in 2023, rising to US$38 million. This upward trend continued into 2024 and 2025, reaching US$55 million and US$57 million respectively. The increase from 2022 to 2025 represents an 84% rise.
- Accounts Receivable, Gross
- Accounts receivable, gross, increased steadily throughout the period. From US$3,339 million in 2021, it grew to US$4,107 million in 2022, US$4,513 million in 2023, US$4,674 million in 2024, and ultimately reached US$5,444 million in 2025. This represents a cumulative increase of approximately 63% over the five years.
- Allowance as a Percentage of Accounts Receivable, Gross
- The allowance as a percentage of gross accounts receivable decreased significantly from 1.26% in 2021 to 0.75% in 2022. This suggests a reduction in perceived credit risk or a change in estimation methodology. The percentage then increased to 0.84% in 2023 and further to 1.18% in 2024, indicating a growing concern regarding potential uncollectible accounts. The percentage stabilized at 1.05% in 2025. The increase from 2022 to 2024 represents a 57% rise in the ratio.
The divergence between the trend in the allowance for credit losses and the percentage of accounts receivable suggests that the company is increasing its absolute provision for bad debts, but at a slower rate than the growth in its overall receivables. This could be due to a shift in the customer base, changes in credit terms, or a more conservative approach to risk assessment as the receivables portfolio expands.