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 current expected credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for current expected credit losses exhibited a generally increasing trend over the five-year period. Accounts receivable, gross, demonstrated more fluctuation. The relationship between these two items, as expressed by the allowance as a percentage of gross accounts receivable, reveals a pattern of increasing risk mitigation, followed by a slight decrease in the most recent year.
- Allowance for Current Expected Credit Losses
- The allowance for current expected credit losses increased from US$48.9 million in 2021 to US$62.5 million in 2025. The growth was most pronounced between 2021 and 2023, increasing by approximately 22%. The rate of increase slowed between 2023 and 2025, with a more modest rise of roughly 5%. This suggests a potential stabilization or a shift in credit risk assessment practices.
- Accounts Receivable, Gross
- Gross accounts receivable experienced an initial increase from US$2,401.3 million in 2021 to US$2,620.2 million in 2022. A subsequent decrease was observed in 2023, falling to US$2,527.5 million. This trend continued into 2024, with a further reduction to US$2,449.2 million. However, 2025 saw a significant increase, reaching US$2,853.7 million. This fluctuation indicates potential changes in sales volume, credit terms offered to customers, or collection efficiency.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio, representing the allowance’s coverage of potential bad debts relative to outstanding receivables, increased steadily from 2.04% in 2021 to 2.47% in 2024. This indicates a strengthening of the provision for credit losses as a proportion of the receivables balance. However, in 2025, the ratio decreased slightly to 2.19%. This decrease could be attributed to the larger increase in gross accounts receivable, or a reassessment of credit risk, potentially indicating improved credit quality of new receivables.
Overall, the observed trends suggest a proactive approach to managing credit risk, with a growing allowance for expected credit losses relative to receivables for most of the period. The recent decrease in the allowance percentage warrants further investigation to determine the underlying cause and its potential impact on future financial performance.