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 receivables, gross = 100 × Allowance for doubtful accounts ÷ Receivables, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable has remained relatively stable over the five-year period, fluctuating between US$319 million and US$340 million. While there were minor increases from 2021 to 2022 and from 2024 to 2025, the overall trend suggests a consistent approach to recognizing potential credit losses.
Gross receivables have demonstrated a clear upward trend throughout the period, increasing from US$5,634 million in 2021 to US$9,024 million in 2025. This growth indicates an expansion of credit sales or an increase in outstanding invoices.
- Allowance as a Percentage of Gross Receivables
- A consistent downward trend is observed in the allowance for doubtful accounts as a percentage of gross receivables. This ratio decreased from 5.66% in 2021 to 3.71% in 2025. This suggests that, relative to the growing receivables balance, the company is recognizing a smaller proportion of potential uncollectible amounts. This could be due to improved credit quality of customers, more effective collection efforts, or a change in the company’s risk tolerance and accounting policies regarding bad debt estimation.
The combination of a stable allowance amount and increasing gross receivables results in the declining percentage. The company appears to be managing its credit risk effectively, as the allowance has not needed to increase proportionally with the growth in receivables. However, continued monitoring of this ratio is recommended to ensure it remains aligned with the company’s credit risk profile and industry benchmarks.
The slight increase in the allowance from 2024 to 2025, despite the continued decline in the percentage of receivables, suggests a potential recognition of increased credit risk in that specific year, even as overall risk relative to receivables decreased.