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.
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 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 97 ÷ 11,872 = 0.82%
The allowance for doubtful accounts receivable has exhibited a generally increasing trend over the five-year period. Simultaneously, accounts receivable, gross, have also increased. However, the relationship between these two items, as reflected in the allowance as a percentage of gross accounts receivable, reveals a more nuanced pattern.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts increased from US$62 million in 2021 to US$97 million in 2025. The growth was not linear; the largest absolute increase occurred between 2022 and 2023 (US$16 million), while the increase from 2024 to 2025 was more moderate (US$8 million). This suggests a potentially changing credit environment or a shift in the company’s assessment of credit risk during those periods.
- Accounts Receivable, Gross
- Gross accounts receivable increased consistently from US$9,292 million in 2021 to US$11,872 million in 2025. The most substantial year-over-year increase was observed between 2023 and 2024, with a rise of US$930 million. This growth in receivables could be attributed to increased sales volume or extended credit terms offered to customers.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio began at 0.67% in 2021 and rose to 0.86% in 2024, indicating a growing proportion of receivables potentially at risk of non-collection relative to the total outstanding. However, in 2025, the ratio decreased slightly to 0.82%. While still higher than the initial value in 2021, the 2025 decrease suggests a possible stabilization or improved assessment of credit risk, or a faster growth rate in gross receivables compared to the allowance.
Overall, the increasing allowance for doubtful accounts alongside growing gross accounts receivable is a common occurrence with business expansion. The slight decrease in the allowance percentage in the most recent year warrants continued monitoring to determine if it represents a sustained trend or a temporary fluctuation.
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