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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- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Selected Financial Data since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
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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 doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable has demonstrated a consistent decline over the five-year period. Simultaneously, gross accounts receivable have fluctuated, impacting the allowance as a percentage of gross accounts receivable.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts began at US$10 million in 2021 and decreased steadily to US$4 million by 2025. This represents a 60% reduction in the allowance over the observed timeframe. The most significant decrease occurred between 2022 and 2023, followed by a further reduction between 2023 and 2024.
- Gross Accounts Receivable
- Gross accounts receivable increased from US$1,732 million in 2021 to US$2,082 million in 2023, representing a 20.2% increase. However, it subsequently decreased to US$1,864 million in 2025, a 10.4% decline from the 2023 peak. The decrease from 2024 to 2025 was relatively small.
- Allowance as a Percentage of Gross Accounts Receivable
- This ratio began at 0.58% in 2021 and has exhibited a consistent downward trend, reaching 0.21% in 2025. This indicates that the allowance for doubtful accounts is becoming a smaller proportion of the total outstanding receivables. The rate of decline accelerated between 2022 and 2024. The decrease in this percentage suggests either improved credit quality of receivables, a more conservative approach to recognizing potential bad debts, or a combination of both.
The combined trends suggest a decreasing risk of uncollectible accounts relative to the overall level of accounts receivable. Further investigation into the company’s credit policies and collection practices would be necessary to determine the underlying drivers of these changes.