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 × Allowances ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable exhibited fluctuating behavior over the five-year period. Initially, the allowance increased before stabilizing and then declining. Simultaneously, gross accounts receivable generally increased, though not consistently. The relationship between these two figures, as expressed by the allowance as a percentage of gross accounts receivable, reveals a decreasing trend in risk mitigation relative to outstanding receivables.
- Allowance for Doubtful Accounts
- The allowance began at US$150 million in 2021 and rose to US$189 million in 2022, representing a 26% increase. A modest further increase to US$193 million occurred in 2023. However, the allowance then decreased to US$173 million in 2024 and continued to decline to US$147 million in 2025, representing a 15% decrease from 2024. This suggests a shifting assessment of credit risk or changes in collection efforts.
- Gross Accounts Receivable
- Gross accounts receivable demonstrated an overall upward trend, increasing from US$8,127 million in 2021 to US$9,047 million in 2025. Growth was observed between 2021 and 2023, peaking at US$8,414 million. A slight decrease to US$8,364 million occurred in 2024 before a more substantial increase in 2025. This indicates growing sales on credit, but with a temporary dip in 2024.
- Allowance as a Percentage of Gross Accounts Receivable
- This ratio started at 1.85% in 2021 and increased to 2.28% in 2022, indicating a more conservative approach to recognizing potential bad debts relative to the growing receivable balance. The ratio remained relatively stable at 2.29% in 2023. A decline to 2.07% in 2024 and further to 1.62% in 2025 was observed. This decreasing percentage suggests a reduced level of reserved funds relative to the outstanding receivables, potentially reflecting improved credit quality of customers or a change in the company’s risk tolerance.
The combined trends suggest that while gross accounts receivable have generally increased, the company has reduced the proportional amount set aside to cover potential bad debts. Further investigation into the company’s credit policies, collection practices, and customer base would be necessary to fully understand the implications of these trends.