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 doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
The allowance for doubtful accounts has exhibited a consistent upward trajectory over the five-year period. Simultaneously, accounts receivable, gross, have also increased, though not at a perfectly consistent rate. The relationship between these two figures, as represented by the allowance as a percentage of accounts receivable, gross, reveals a more nuanced pattern.
- Allowance for Doubtful Accounts
- The allowance for doubtful accounts increased steadily from US$1,100 million in 2021 to US$2,400 million in 2025. This represents a cumulative increase of 118.2% over the period. The largest absolute increase occurred between 2023 and 2024, with an addition of US$300 million. The rate of increase appears to be accelerating in later years.
- Accounts Receivable, Gross
- Accounts receivable, gross, experienced substantial growth, rising from US$27,600 million in 2021 to US$63,200 million in 2025. This signifies a 128.9% increase over the five-year span. Growth was most pronounced between 2021 and 2022, and again between 2024 and 2025. The increase in receivables suggests increased sales or a change in credit terms.
- Allowance as a Percentage of Accounts Receivable, Gross
- This ratio initially decreased from 3.99% in 2021 to 3.50% in 2023, indicating that the allowance was not increasing as quickly as accounts receivable. However, the ratio rebounded to 3.90% in 2024 and then slightly decreased to 3.80% in 2025. The initial decline suggests improved collection efficiency or a lower risk profile of receivables. The subsequent increase in 2024 could indicate a reassessment of credit risk or a slowdown in collections. The stabilization around 3.8-3.9% in the most recent years suggests a relatively consistent approach to estimating potential bad debts relative to the outstanding receivables balance.
In summary, while both the allowance for doubtful accounts and gross accounts receivable have grown, the percentage relationship between them has fluctuated. The increasing allowance suggests a growing recognition of potential uncollectible amounts, while the growth in receivables reflects overall business expansion. The relatively stable percentage in the latest years indicates a potentially deliberate policy regarding bad debt provisioning.