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 × Accounts receivable allowances ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for doubtful accounts receivable has exhibited a consistent upward trend 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 Receivable (US$ in millions)
- The allowance for doubtful accounts receivable increased from US$8 million in 2021 to US$22 million in 2025. This represents a 175% increase over the period. The most significant increase occurred between 2022 and 2023 (US$3 million) and again between 2023 and 2024 (US$5 million). The increase from 2024 to 2025 was more moderate, at US$1 million.
- Gross Accounts Receivable (US$ in millions)
- Gross accounts receivable experienced an initial increase from US$1,709 million in 2021 to US$1,908 million in 2022. A subsequent decrease was observed in 2023, falling to US$1,803 million, followed by a further decrease to US$1,740 million in 2024. However, gross accounts receivable increased substantially in 2025, reaching US$1,985 million.
- Allowance as a Percentage of Gross Accounts Receivable
- This ratio demonstrates a clear increasing trend from 0.47% in 2021 to 1.21% in 2024. This indicates a growing proportion of accounts receivable are deemed potentially uncollectible relative to the total outstanding. While the percentage decreased slightly in 2025 to 1.11%, it remains significantly higher than the levels observed in 2021, 2022, and 2023. The substantial increase in gross accounts receivable in 2025 partially offset the continued increase in the allowance, resulting in the slight percentage decrease.
The observed trends suggest a potential shift in credit risk management or a change in the composition of the customer base. The increasing allowance percentage, despite the recent increase in gross receivables, warrants further investigation to determine the underlying causes and assess the potential impact on future financial performance.