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 Profitability Ratios
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- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
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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 notes and accounts receivable, gross = 100 × Allowance for expected credit losses on notes and accounts receivable ÷ Notes and accounts receivable, gross
= 100 × ÷ =
The allowance for expected credit losses on notes and accounts receivable exhibited a fluctuating pattern over the five-year period. Initially, the allowance increased before declining significantly in later years. Concurrent changes were observed in the gross amount of notes and accounts receivable, and the ratio of the allowance to gross receivables provides further insight into the company’s credit risk management.
- Allowance for Expected Credit Losses
- The allowance began at US$242 million in 2021, increasing to US$322 million in 2022. A subsequent decrease to US$301 million was noted in 2023. More substantial declines followed, with the allowance falling to US$145 million in 2024 and further to US$136 million in 2025. This represents an overall reduction of approximately 43.8% from the peak in 2022 to the end of 2025.
- Gross Notes and Accounts Receivable
- Gross notes and accounts receivable decreased from US$7,998 million in 2021 to US$7,680 million in 2022. An increase to US$8,155 million occurred in 2023, followed by a slight decrease to US$7,896 million in 2024. The most significant change was observed in 2025, with a substantial increase to US$9,300 million. This indicates a growth in outstanding receivables in the most recent year.
- Allowance as a Percentage of Gross Receivables
- The allowance as a percentage of gross receivables increased from 3.03% in 2021 to 4.19% in 2022, suggesting a more conservative approach to recognizing potential credit losses as receivables decreased. This percentage then decreased to 3.69% in 2023. A more pronounced decline was observed in 2024 and 2025, falling to 1.84% and 1.46% respectively. This decrease in the percentage, despite the increase in gross receivables in 2025, suggests a reduced perceived risk of uncollectible accounts or a change in the methodology for estimating expected credit losses.
The combined trends suggest that while the company initially increased its provision for potential bad debts, it subsequently reduced this provision, even as gross receivables grew in the final year of the period. This could be attributable to improved collection rates, changes in the customer base, or a reassessment of credit risk factors. Further investigation into the company’s credit policies and economic conditions would be necessary to fully understand these trends.
Allowance for Credit Losses
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 financing receivables, gross = 100 × Allowance for credit losses ÷ Financing receivables, gross
= 100 × ÷ =
The allowance for credit losses decreased consistently from 2021 to 2024, before experiencing a slight increase in 2025. Simultaneously, gross financing receivables exhibited a decrease from 2021 to 2024, followed by a substantial increase in 2025. The ratio of the allowance for credit losses to gross financing receivables demonstrates a declining trend over the five-year period, indicating a decreasing proportion of potential uncollectible receivables relative to the total receivables balance.
- Allowance for Credit Losses (US$ in millions)
- The allowance for credit losses began at 201 in 2021 and decreased each year, reaching 128 in 2024. A modest increase to 140 was observed in 2025. This suggests a general reduction in the estimated amount of uncollectible receivables, with a potential reversal of that trend in the most recent year.
- Financing Receivables, Gross (US$ in millions)
- Gross financing receivables remained relatively stable between 2021 and 2022, fluctuating around 12,800. A decline was then observed in 2023 and 2024, reaching 11,740. However, 2025 saw a significant increase to 15,192, representing a substantial rise in the total amount of financing receivables outstanding.
- Allowance as a Percentage of Financing Receivables, Gross
- This ratio decreased from 1.56% in 2021 to 0.92% in 2025. The consistent decline indicates that the allowance for credit losses is becoming a smaller proportion of the overall financing receivables balance. This could be attributed to improved credit quality of receivables, more effective collection efforts, or a change in accounting policies. The decrease suggests a reduced perceived risk of default relative to the size of the receivables portfolio.
The increase in gross financing receivables in 2025, coupled with the slight increase in the allowance for credit losses, warrants further investigation. While the allowance percentage remains lower than in previous years, the absolute increase in receivables may necessitate continued monitoring to ensure adequate coverage for potential credit losses.