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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- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
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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 receivables, gross = 100 × Allowance for credit losses ÷ Receivables, gross
= 100 × ÷ =
The allowance for credit losses exhibited a generally stable pattern over the five-year period, with fluctuations occurring between US$658 million and US$738 million. Gross receivables demonstrated a consistent upward trend, increasing from US$12,666 million in 2021 to US$14,582 million in 2025. The allowance for doubtful accounts as a percentage of gross receivables showed a slight overall decline, despite some interim increases.
- Allowance for Credit Losses
- The allowance for credit losses increased from US$658 million in 2021 to US$735 million in 2022, representing a 11.7% rise. A subsequent decrease to US$698 million was observed in 2023, followed by an increase to US$738 million in 2024. The final year, 2025, saw a slight reduction to US$713 million. These fluctuations suggest potential adjustments in the company’s assessment of credit risk, possibly influenced by broader economic conditions or changes in customer payment patterns.
- Gross Receivables
- Gross receivables increased steadily throughout the period. The largest year-over-year increase occurred between 2022 and 2023, with a rise of US$1,104 million. While growth continued in 2024, it was at a slower pace. A further increase was noted in 2025, reaching US$14,582 million. This consistent growth indicates an expansion of credit sales or an increase in the volume of services provided on credit.
- Allowance as a Percentage of Gross Receivables
- This ratio began at 5.20% in 2021 and peaked at 5.48% in 2022, coinciding with the increase in the allowance for credit losses. The ratio then decreased to 4.81% in 2023, before rising slightly to 5.13% in 2024. It concluded the period at 4.89% in 2025. The overall trend indicates a decreasing proportion of the allowance relative to gross receivables, suggesting that the company may be becoming more confident in the collectability of its receivables, or that the growth in receivables is outpacing the growth in anticipated bad debts.
In summary, while the allowance for credit losses remained relatively stable in absolute terms, its relationship to gross receivables suggests a potential shift in the company’s risk assessment or a change in the composition of its receivables portfolio.