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 receivables, gross = 100 × Allowances for doubtful receivables ÷ Receivables, gross
= 100 × ÷ =
The allowance for doubtful receivables exhibited fluctuating behavior over the five-year period. Initially increasing significantly, it then decreased before rising again to reach its highest value in the observed timeframe. Gross receivables also demonstrated variability, with an initial increase followed by a decline and subsequent recovery.
- Allowance for Doubtful Receivables (USD Millions)
- The allowance for doubtful receivables began at 47 US$ million in 2021, increasing substantially to 93 US$ million in 2022. A decrease was then noted in 2023, falling to 69 US$ million. The allowance experienced a moderate increase in 2024, reaching 77 US$ million, and continued to rise in 2025, concluding at 102 US$ million. This indicates a growing concern regarding the collectibility of receivables in the later years of the period.
- Gross Receivables (USD Millions)
- Gross receivables increased from 11,417 US$ million in 2021 to 15,822 US$ million in 2022. A slight decrease occurred in 2023, with receivables totaling 15,670 US$ million. A more pronounced decline was observed in 2024, falling to 14,800 US$ million. Receivables partially recovered in 2025, reaching 15,500 US$ million, though not fully returning to the 2022 peak.
- Allowance as a Percentage of Gross Receivables
- The allowance as a percentage of gross receivables increased from 0.41% in 2021 to 0.59% in 2022, suggesting a more conservative approach to recognizing potentially uncollectible accounts as receivables grew. This percentage decreased to 0.44% in 2023, coinciding with the decrease in the allowance amount. It rose again to 0.52% in 2024, and continued to increase to 0.66% in 2025. The upward trend in this percentage from 2021 to 2025 suggests a growing proportion of receivables are considered potentially uncollectible, despite the recovery in gross receivables in the final year.
The combined trends suggest that while gross receivables experienced fluctuations, the company progressively increased its assessment of potential bad debts as a percentage of those receivables, particularly in the latter part of the period. This could be attributable to changing economic conditions, shifts in customer creditworthiness, or adjustments to the company’s credit policies.
Allowance for Credit Losses
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 recorded investment in finance receivables = 100 × Allowance for credit losses ÷ Recorded investment in finance receivables
= 100 × ÷ =
The allowance for credit losses exhibited a fluctuating pattern over the five-year period. While the absolute value of the allowance decreased initially, it showed signs of stabilization and a slight increase towards the end of the period. Simultaneously, the recorded investment in finance receivables consistently increased, though with a minor decrease between 2023 and 2024.
- Allowance for Credit Losses (US$ in millions)
- The allowance for credit losses decreased from $925 million in 2021 to $845 million in 2022, representing a reduction of approximately 8.7%. It then increased to $882 million in 2023 before declining slightly to $864 million in 2024. By 2025, the allowance had risen to $911 million, nearing the level observed in 2021.
- Recorded Investment in Finance Receivables (US$ in millions)
- The recorded investment in finance receivables demonstrated a consistent upward trend overall. It increased from $84,724 million in 2021 to $89,468 million in 2022, then to $102,957 million in 2023, and peaked at $112,500 million in 2024. A slight decrease was observed in 2025, with the investment falling to $111,490 million.
- Allowance as a Percentage of Recorded Investment in Finance Receivables
- This ratio, representing the allowance’s coverage of finance receivables, exhibited a clear downward trend. It decreased from 1.09% in 2021 to 0.94% in 2022, and continued to decline to 0.86% in 2023 and 0.77% in 2024. A modest increase was noted in 2025, with the ratio rising to 0.82%. This suggests that, relative to the growing investment in finance receivables, the provision for potential losses was decreasing, although it stabilized somewhat in the final year.
The observed trends suggest a potential shift in risk assessment or credit quality of the finance receivables portfolio. The decreasing percentage indicates that the company may have been becoming more confident in the collectability of its receivables, or that the growth in receivables outpaced the perceived need for increased loss provisions. The slight reversal in 2025 warrants further investigation to determine if it signals a change in credit conditions or a more conservative approach to provisioning.