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 accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Trade accounts receivable, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable exhibited a generally decreasing trend over the five-year period. While fluctuating annually, the balance declined from US$492 million in 2021 to US$427 million in 2025. Simultaneously, gross trade accounts receivable increased from US$11,971 million in 2021 to US$12,301 million in 2025. Consequently, the allowance as a percentage of gross trade accounts receivable decreased consistently throughout the period.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts began at US$492 million in 2021, decreased to US$449 million in 2022, and then increased slightly to US$470 million in 2023. A further decrease was observed in 2024, falling to US$438 million, before concluding at US$427 million in 2025. This indicates a general reduction in the anticipated uncollectible portion of accounts receivable, despite some annual volatility.
- Gross Trade Accounts Receivable
- Gross trade accounts receivable experienced a decrease from US$11,971 million in 2021 to US$11,401 million in 2022. Subsequent years saw increases, reaching US$11,647 million in 2023, US$11,901 million in 2024, and ultimately US$12,301 million in 2025. This suggests a growth in overall credit sales over the period, with a temporary dip in 2022.
- Allowance as a Percentage of Gross Trade Accounts Receivable
- This ratio began at 4.11% in 2021 and steadily declined each year. It reached 3.94% in 2022, 4.04% in 2023, 3.68% in 2024, and concluded at 3.47% in 2025. The consistent decrease suggests a strengthening of the overall credit quality of accounts receivable, or a more conservative approach to recognizing potential bad debts relative to sales volume. The decreasing percentage, coupled with increasing gross receivables, implies improved collection efficiency or a lower risk profile of customers.
The observed trends suggest a decreasing need for a large allowance for doubtful accounts, potentially reflecting improved credit management practices or a shift in the customer base towards lower-risk entities. Further investigation into credit policies and customer demographics would be necessary to confirm these inferences.