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 current receivables, gross = 100 × Allowance for credit losses ÷ Current receivables, gross
= 100 × ÷ =
The allowance for credit losses demonstrates a significant declining trend over the observed period. Simultaneously, gross current receivables fluctuate, impacting the allowance as a percentage of receivables. A detailed examination of these movements is presented below.
- Allowance for Credit Losses (US$ in millions)
- The allowance for credit losses decreased substantially from US$1,074 million in 2021 to US$94 million in 2025. The most significant reduction occurred between 2022 and 2023, falling from US$859 million to US$647 million. The decline continued, albeit at a slower pace, reaching US$106 million in 2024 before a marginal decrease to US$94 million in 2025. This consistent reduction suggests a decreasing expectation of uncollectible accounts.
- Current Receivables, Gross (US$ in millions)
- Gross current receivables increased from US$16,694 million in 2021 to US$18,835 million in 2022. A subsequent decrease was observed in 2023, with receivables falling to US$16,113 million. A substantial reduction occurred in 2024, dropping to US$9,433 million, followed by a partial recovery to US$11,867 million in 2025. These fluctuations indicate changes in sales volume, credit terms, or collection efficiency.
- Allowance as a Percentage of Current Receivables, Gross (%)
- The allowance as a percentage of gross current receivables mirrored the trends in the absolute allowance amount. It decreased from 6.43% in 2021 to 0.79% in 2025. The largest single-year decrease was from 6.43% to 4.56% between 2021 and 2022. The rate continued to decline, reaching 1.12% in 2024 and concluding at 0.79% in 2025. This indicates that the allowance is becoming a smaller proportion of the outstanding receivables balance, potentially reflecting improved credit quality of customers or a more conservative approach to recognizing potential losses relative to sales.
The combined trends suggest a strengthening of the receivables position. The significant reduction in the allowance, coupled with the fluctuations in gross receivables, warrants further investigation into the underlying drivers of these changes, including credit policies, collection efforts, and macroeconomic factors impacting customer solvency.