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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- Income Statement
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2005
- Operating Profit Margin since 2005
- Return on Assets (ROA) 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 credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for credit losses exhibited an overall increasing trend from 2021 to 2025. While experiencing a decrease in 2022, the allowance consistently rose in subsequent years, reaching $1,250 million by the end of 2025. Accounts receivable, gross, also demonstrated a consistent upward trajectory throughout the period, growing from $24,742 million in 2021 to $28,347 million in 2025.
- Allowance for Credit Losses
- The allowance for credit losses decreased from $896 million in 2021 to $826 million in 2022, representing a decline of approximately 7.8%. However, from 2022 to 2025, the allowance increased by 51.3%, indicating a growing expectation of uncollectible accounts. The largest single-year increase occurred between 2023 and 2024.
- Accounts Receivable, Gross
- Accounts receivable, gross, increased steadily each year. The growth rate varied, with the largest absolute increase occurring between 2024 and 2025 ($1,086 million). This consistent growth suggests increasing sales or extended credit terms.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio initially decreased from 3.62% in 2021 to 3.26% in 2022, suggesting improved collection efficiency or a lower risk profile of receivables. However, the ratio then increased consistently from 2022 to 2025, reaching 4.41%. This indicates that the allowance for credit losses is growing at a faster rate than accounts receivable, gross, potentially signaling a heightened credit risk or a more conservative approach to estimating uncollectible accounts. The increase from 3.90% in 2023 to 4.23% in 2024, and then to 4.41% in 2025, warrants further investigation.
The combined trends suggest that while the overall volume of accounts receivable is increasing, the company is simultaneously recognizing a growing need to reserve for potential credit losses. This could be due to a variety of factors, including changes in the customer base, economic conditions, or internal credit policies.