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.
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 notes and accounts receivable, gross = 100 × Reserves ÷ Notes and accounts receivable, gross
= 100 × 440 ÷ 45,002 = 0.98%
The credit risk profile demonstrates a general trend of decreasing allowance levels relative to the growth in gross receivables from 2021 to 2025. Gross notes and accounts receivable increased from US$ 32,923 million to US$ 45,002 million, representing a steady expansion of credit exposure. Concurrently, the reserves for doubtful accounts fluctuated, peaking in 2022 before experiencing a significant contraction in 2023.
- Gross Receivables Trend
- An upward trajectory is observed in gross notes and accounts receivable, which grew from US$ 32,923 million in 2021 to US$ 45,002 million by 2025. A sharp increase occurred between 2021 and 2022, followed by a temporary decline in 2023, and a subsequent recovery through 2025.
- Reserve Volatility
- Reserves for doubtful accounts exhibited notable variance, starting at US$ 540 million in 2021 and ending at US$ 440 million in 2025. The most significant reduction occurred in 2023, when reserves fell to US$ 271 million, followed by a rebound to US$ 476 million in 2024.
- Allowance Ratio Analysis
- The allowance as a percentage of gross receivables followed a downward trend over the analyzed period, decreasing from 1.64% in 2021 to 0.98% in 2025. The ratio reached a minimum of 0.71% in 2023, indicating a period of lower anticipated credit losses or a shift in the estimation of uncollectible accounts relative to the total receivable balance.
The divergence between the increasing gross receivables and the generally declining allowance percentage suggests an improvement in the perceived credit quality of the receivables portfolio or a modification in the risk assessment methodology over the five-year period.
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