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 trade and other receivables, gross = 100 × Allowance for expected credit losses ÷ Trade and other receivables, gross
= 100 × ÷ =
The allowance for expected credit losses exhibited an overall increasing trend between 2021 and 2025, though not consistently year-over-year. Simultaneously, trade and other receivables, gross, also increased over the same period. The relationship between these two figures, as reflected in the allowance as a percentage of gross receivables, reveals fluctuations in the company’s assessment of credit risk.
- Allowance for Expected Credit Losses
- The allowance remained constant at US$405 million in both 2021 and 2022. An increase to US$457 million was observed in 2023, followed by a decrease to US$421 million in 2024. The most significant increase occurred in 2025, reaching US$581 million. This suggests a heightened concern regarding potential uncollectible accounts in the most recent year.
- Trade and Other Receivables, Gross
- Trade and other receivables, gross, increased from US$4,904 million in 2021 to US$5,547 million in 2025. Growth was relatively steady, with minor fluctuations. The increase from 2023 to 2024 was minimal, while the largest increase occurred between 2024 and 2025.
- Allowance as a Percentage of Trade and Other Receivables, Gross
- This percentage began at 8.26% in 2021 and decreased slightly to 8.16% in 2022. It then rose to 8.83% in 2023 before decreasing to 8.35% in 2024. A notable increase to 10.47% was recorded in 2025. This indicates that, despite the overall growth in receivables, the company increased its estimate of potential uncollectible amounts relative to those receivables in 2025, suggesting a potentially deteriorating credit environment or a change in credit risk assessment policies.
The increasing percentage in 2025 warrants further investigation to determine the underlying factors contributing to the higher allowance. This could include changes in customer mix, economic conditions impacting customer solvency, or adjustments to the methodology used to estimate expected credit losses.