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 × Allowance for expected credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for expected credit losses demonstrates a generally decreasing trend over the five-year period. Simultaneously, accounts receivable, gross, exhibits more volatility, with an overall increase. The relationship between these two items, as reflected in the allowance as a percentage of accounts receivable, gross, reveals a significant decline in the provision for potential bad debts relative to the outstanding receivables.
- Allowance for Expected Credit Losses
- The allowance began at US$475 million in 2021 and decreased to US$316 million by 2023. A slight increase to US$340 million was observed in 2025, but this remains below the initial value in 2021. This suggests a decreasing concern regarding the collectability of receivables over the majority of the period.
- Accounts Receivable, Gross
- Accounts receivable, gross, decreased from US$10,136 million in 2021 to US$9,560 million in 2022. Subsequently, it increased to US$11,154 million in 2023 and US$11,265 million in 2024, before rising substantially to US$15,041 million in 2025. This indicates a growing volume of outstanding receivables, particularly in the final year of the observed period.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio began at 4.69% in 2021 and 4.73% in 2022, indicating a relatively stable level of provision for bad debts. A marked decrease was then observed, falling to 2.83% in 2023 and further to 2.57% in 2024. The ratio continued its downward trajectory, reaching 2.26% in 2025. This substantial decline suggests a decreasing proportion of the allowance relative to the total receivables balance, potentially reflecting improved credit quality of customers, more aggressive collection efforts, or a change in accounting policies regarding credit loss estimation.
The combination of decreasing allowance and increasing gross accounts receivable warrants further investigation. While a lower allowance percentage may indicate improved credit risk management, it is crucial to assess whether the current allowance adequately covers potential future losses, especially given the significant growth in receivables in 2025. A detailed review of the aging of receivables and the company’s credit policies is recommended.