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 accounts receivable, gross = 100 × Allowances ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable exhibited fluctuating behavior over the five-year period. Initially, a substantial increase is noted, followed by relative stabilization and then a decline. Accounts receivable, gross, generally increased before experiencing a slight decrease in the final year. The relationship between these two items, expressed as a percentage, reveals evolving credit risk management practices or changing customer payment patterns.
- Allowance for Doubtful Accounts
- The allowance began at US$177 million in 2021 and more than doubled to US$326 million in 2022. Subsequent years saw minor adjustments, with US$323 million in 2023 and US$314 million in 2024. A significant decrease occurred in 2025, falling to US$202 million. This suggests a potential shift in the company’s assessment of credit risk or a more aggressive write-off policy towards the end of the period.
- Accounts Receivable, Gross
- Gross accounts receivable demonstrated an upward trend from US$7,007 million in 2021 to US$8,133 million in 2024. However, this trend reversed in 2025, with a decrease to US$7,823 million. This fluctuation could be attributed to changes in sales volume, credit terms offered to customers, or the effectiveness of collection efforts.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio increased from 2.53% in 2021 to 4.20% in 2022, indicating a heightened perception of credit risk relative to outstanding receivables. The ratio remained relatively stable at 4.11% in 2023 and decreased slightly to 3.86% in 2024. A more pronounced decline occurred in 2025, falling to 2.58%. This suggests a reduction in perceived credit risk or a change in the methodology used to estimate uncollectible accounts, potentially aligning with the decrease in the absolute allowance amount.
The observed patterns suggest a period of increased caution regarding potential bad debts, followed by a period of stabilization and then a reduction in the estimated risk. The decrease in both the allowance amount and the allowance percentage in 2025 warrants further investigation to determine the underlying causes and assess the potential impact on future financial performance.