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: 2025-12-28), 10-K (reporting date: 2024-12-29), 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 trade, gross = 100 × Allowances for doubtful accounts ÷ Accounts receivable trade, gross
= 100 × ÷ =
The allowances for doubtful accounts receivable exhibited a generally decreasing trend over the five-year period. Simultaneously, gross accounts receivable trade fluctuated, impacting the allowance as a percentage of gross receivables.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts decreased from US$230 million in 2021 to US$166 million in 2023. A slight increase to US$167 million was noted in 2024, followed by a further increase to US$183 million in 2025. This suggests a stabilization, and a modest increase in anticipated uncollectible accounts towards the end of the period.
- Gross Accounts Receivable Trade
- Gross accounts receivable trade increased from US$15,513 million in 2021 to US$16,363 million in 2022. A decrease to US$15,039 million occurred in 2023, remaining relatively stable at US$15,009 million in 2024 before rising significantly to US$17,361 million in 2025. This indicates fluctuations in credit sales and collection patterns.
- Allowance as a Percentage of Gross Accounts Receivable
- The allowance as a percentage of gross accounts receivable trade decreased consistently from 1.48% in 2021 to 1.05% in 2025. This decline suggests a decreasing risk of uncollectible accounts relative to the overall level of receivables, potentially due to improved credit policies, more effective collection efforts, or a change in the customer base. The rate of decline slowed between 2023 and 2024, and continued at a similar pace through 2025.
The observed increases in both the allowance and gross receivables in 2025 warrant further investigation to determine the underlying causes and potential implications for future financial performance. The consistent decrease in the allowance percentage, despite the fluctuations in absolute allowance amounts, suggests a generally improving credit risk profile.