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 credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for credit losses exhibited fluctuating behavior over the five-year period. Initially increasing, it then decreased before rising again. Accounts receivable, gross, demonstrated a general decline from 2021 to 2023, followed by a slight recovery and further increase in the final year. The allowance as a percentage of gross accounts receivable showed a consistent upward trend, particularly accelerating in the later years.
- Allowance for Credit Losses (US$ in millions)
- The allowance for credit losses increased from US$128 million in 2021 to US$146 million in 2022, representing a growth of approximately 14%. A subsequent decrease was observed in 2023, falling to US$126 million. This was followed by a modest increase to US$136 million in 2024, and a more substantial rise to US$180 million in 2025. This final increase suggests a potential shift in credit risk assessment or a worsening of collection expectations.
- Accounts Receivable, Gross (US$ in millions)
- Gross accounts receivable remained relatively stable between 2021 and 2022, fluctuating between US$12,669 million and US$12,729 million. A more pronounced decrease occurred in 2023, with a value of US$11,342 million. This decline continued into 2024, reaching US$11,007 million, before partially recovering to US$11,389 million in 2025. The 2023-2024 decrease could be attributed to improved collection efforts, a reduction in sales, or a change in credit terms.
- Allowance as a Percentage of Accounts Receivable, Gross (%)
- This ratio increased steadily throughout the period. Starting at 1.01% in 2021, it rose to 1.15% in 2022 and 1.11% in 2023. Further increases were observed in 2024 (1.24%) and 2025 (1.58%). The consistent upward trend indicates that a larger proportion of gross accounts receivable is being reserved for potential uncollectibility. The acceleration in the final two years suggests a growing concern regarding the collectability of outstanding receivables, potentially linked to economic conditions or changes in customer creditworthiness.
The increasing percentage, despite a temporary decrease in the absolute allowance amount in 2023, warrants further investigation. The combination of decreasing gross receivables and a rising allowance percentage suggests a potential deterioration in the quality of the remaining receivable balance.