Financial Analysis of Alibaba Group

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flow did not represent that Alibaba had shortage in cash to operate its business activities. It was negative because there was a huge decline in cash flows from financing activities. In this fiscal year, Alibaba spent 2,945 million in sale purchase of stock, so we can still have some expectancy about this company. Usually, stock buybacks could decrease the cost of capital and make less dividends to be paid. Also, reducing the number of outstanding shares increases the earnings per share ratio, which makes the stock more attractive to investors. The total cash flow from operating activities is 8,788 million. One of its major changes is change in liabilities, which was 1,808 million. this cash increase because of an increase in its current liability in its balance sheet. For example, Account payable increased from 3,640 million to 4,657 million, short/current long term debt increased from 321,000 thousand to 665,000 thousand. An increasing in liability means its providing cash towards the company, so the cash Alibaba held from operating activities will increase. The cash flows from investing activities is -6,622 million. the major reason is the increase in investment. An increase in assets means that Alibaba was using money, so the cash flow from investment will decrease.

The return on assets is 6.89% and the return on equity is 14.45%. they are both near the market average. Its competitor Amazon’s ratio is 3.62% and 14.18%, both lower than Alibaba. It means that Alibaba was using its assets to generate earnings with an efficient management, and it is profitable operating its business using the money shareholders have invested.

The debt-to-equity ratio was 67.80% (22,746/33,550) and debt-to-assets ratio was 40.37% (22,746/56,350) Those two ratios were at reasonable level which means Alibaba had a healthy capital structure and it had less financial risk than other companies with higher portion of debt. They are higher than Amazon’s ratios, which are 39.89% for debt-to-equity ratio and 9.20% for debt-to-asset ratio.

The Current Ratio of Alibaba is 2.58 (20,729/8,046), while current ratio of Amazon is 1.05. the Ratio is much higher than Amazon’s, which means that Alibaba is more capable to pay short-term and long-term obligations. Current ratio is a rough measurement of financial health, so it indicates that Alibaba has less potential financial risk than its competitors.

For Quick Ratio and Inventory Turnover, since Alibaba does not have business model like Amazon Prime, Alibaba does not hold inventory. So it is not meaningful to calculate its Quick Ratio and Inventory Turnover and to compare with its competitors. However, I still calculate the ratios for Amazon, which is 1.64 and 7.7, in case references if Alibaba will provide service like Amazon Prime in the future.

The operation profit margin for 2016 is 27.59%, almost maintained the same as 2015’s 30%. This is impressive because it is much higher than the industry level, where Amazon’s operating margin is only 1.81%. Additionally, it is incredible for Alibaba to maintain its high operation margin because in this fiscal year, Alibaba spent a lot of capital on new business initiatives such as mobile operating systems and it renewed its logistics system which increased the operating costs.

The Assets turnover for Alibaba is 0.28, while Amazon’s assets turnover is 1.63. It means that Alibaba has less efficiency in generating revenue using its assets. The earning per share of Alibaba is 2.47, less than Amazon’s 5.31. However, it’s worth noting that shares outstanding of Alibaba is 2.53 billion, and there are 477 million shares outstanding for Amazon, while currently share price for Alibaba is $139 and Amazon is $988. So, the difference of earning per share is somehow due to their different structure of stock volume and price. The P/E ratio of Alibaba is 23.46, lower than Amazon’s 87.37. It indicates that investors can expect to invest less money in order to receive same amount of earnings as Amazon’s in Alibaba. It is more likely that investing in Alibaba is more profitable than Amazon.

Overall, Alibaba is a successful company in recent years that is reliable to its shareholders. It is still a young company that has a lot of potential to grow. It has integrated business system and healthy financial structure. It achieved great growth in its revenue and income and has been profitable for years. If Alibaba could manage the “counterfeits” problem well and build the reputation globally, this company will be more promising. Alibaba is outstanding in e-commerce industry and has higher financial performance, from some financial perspectives, than America’s e-commerce giant Amazon. It could be a good strategy that Alibaba expands its market in North America.

Work Cited

Tong, Frank. "Alibaba’s annual web sales easily surpass U.S. e-retail sales." Digital Commerce 360. N.p., 16 Feb. 2017. Web. 04 June 2017. <https://www.digitalcommerce360.com/2016/05/05/alibabas-annual-web-sales-easily-surpass-us-e-retail-sales/>.

Lajoie, Marc, and Nick Shearman. "What is Alibaba?" The Wall Street Journal. Dow Jones & Company, n.d. Web. 04 June 2017. <http://projects.wsj.com/alibaba/>.