(TIỂU LUẬN) FINANCIAL RATIO ANALYSIS OF ALIBABA

FOREIGN TRADE UNIVERSITY CORPORATE FINANCE FINANCIAL RATIO ANALYSIS OF ALIBABA CLASS: TCHE321(1-1819).1 MEMBER LIST HA THUY TRANG 1613340095 NGUYEN THU TRANG 1617340097 DINH DIEU VY 1617340101 November, 2018 TABLE OF CONTENT I Introduction to the study 1 Introduction .1 Objectives Methods of study .2 II Findings .2 Financial Statements of Alibaba (2016-2018) 2 Financial ratio analysis .4 2.1 Liquidity 2.2 Asset management/Turnover Ratios 2.3 Leverage 13 2.4 Profitability 18 2.5 Market value measure 22 Ratio analysis 26 III Conclusion .27 IV References .28 I Introduction to the study Introduction 1.1 ALIBABA GROUP HOLDING: Alibaba Group is an e-commerce firm that provides consumer-to-consumer and business-tobusiness sales services via web portals Alibaba Group's headquarters is in Yu Hang District, Hangzhou, Zhejiang Province Alibaba Group has a revenue of $44.7B, and 66.421 employees Alibaba Group has raised a total of $24.8B in funding Alibaba Group's main competitors are Amazon, Ebay and Walmart As of February 2018, Alibaba Group has 6.0M fans on Facebook and 58.7K followers on Twitter In recent years, modern technology has become one of the markedly fastest growing sectors in the 21 century As technology becomes more advanced and sophisticated over time, its role reaches critical levels of importance in the e-commerce value chain With backbone of technology, ecommerce called electronic commerce or e-business is a system for the buying and selling of goods and services using the Internet as the main means of exchange One of the most leading e-commerce companies in the world, Alibaba has operated nearly 20 years and gained noticable successes in Asia with more than a billion users worldwide st 1.2 Financial Ratio analysis and interpretation This financial statement analysis mainly focuses on examining the financial ratio of Alibaba Group Holding over the years Each calculation and section will encompass graphs and assessments This data will illustrate the perception and rationale beyond the numbers Besides, many of companies in the e-commerce industry are competing against one another to win the crown for the leader of the global ecommerce market Therefore, two companies, Amazon and Ebay are selected to compare their ratios to Alibaba’s with a view to gaining a better insight into Alibaba’s stock The ecommerce world is dominated by marketplaces such as Alibaba, Amazon or eBay that achieved and maintain huge success through bringing countless third-party sellers into their ecosystems Three of the most prominent ecommerce players in the market today, Alibaba (BABA), eBay and Amazon operate in a homogenous, complementary way, but provide distinctive user experiences After assessing all data points, graphs and calculations based on financial ratios, the final decision needs to be made whether to buy or sell Alibaba’s stock It is recognized that the value of BABA’s brand, its high-growth engine and the massive end market that Alibaba caters to in the incredibly large Chinese e-commerce market boost the potential of company in the long run The financial statement analysis indicates that it is worth investing BABA’s stock or not Objectives  To understand and interpret the basic concepts of financial statement and financial ratio of a company  Interpretation of financial ratios and their significance  To make an investment decision on a company Methods of study In this report, we will use the financial ratio analysis to evaluate the performance of Alibaba, Amazon, and eBay Ratio analysis is a powerful tool for financial analysis This method is used as a benchmark for evaluating the financial position and performance of a firm because the absolute accounting figures reported in the financial statements not provide a meaningful understanding of the performance and financial positions of a firm Therefore, in our report, we used “ratio analysis” method to review and analyze Alibaba’s financial statement to make better economic decisions Different ratios across various categories like liquidity ratios, leverage ratios, profitability ratios, and efficiency ratios help in analyzing the overall health of the company II Findings Financial Statements of Alibaba (2016-2018) 1.1 Income statement (Millions) Period Ending: 3/31/2018 3/31/2017 3/31/2016 Total Revenue $39,777,000 $22,965,000 $15,638,000 Cost of Revenue $17,014,000 $8,631,000 $5,312,000 Gross Profit $22,764,000 $14,334,000 $10,327,000 Research and Development $3,617,000 $2,475,000 $2,132,000 Sales, General and Admin $6,920,000 $4,143,000 $3,172,000 Operating Expenses Non-Recurring Items $79,000 $0 $70,000 Other Operating Items $1,132,000 $743,000 $453,000 Operating Income $11,017,000 $6,973,000 $4,500,000 Add'l income/expense items $5,508,000 $2,125,000 $8,397,000 Earnings Before Interest and Tax $16,525,000 $9,098,000 $12,897,000 Interest Expense $567,000 $388,000 $301,000 Earnings Before Tax $15,958,000 $8,710,000 $12,596,000 Income Tax $2,893,000 $1,999,000 $1,306,000 Minority Interest $426,000 $355,000 $26,000 Equity Earnings/Loss Unconsolidated Subsidiary Net Income-Cont Operations ($3,305,000) ($729,000) ($267,000) $10,187,000 $6,337,000 $11,049,000 Net Income $10,187,000 $6,337,000 $11,049,000 Net Income Applicable to Common Shareholders $10,170,000 $6,337,000 $11,049,000 1.2 Balance sheet (Millions) Period Ending: 3/31/2018 3/31/2017 3/31/2016 Cash and Cash Equivalents $32,221,000 $21,241,000 $16,724,000 Short-Term Investments $1,733,000 $1,025,000 $1,373,000 Net Receivables $0 $0 $0 Inventory $0 $0 $0 Other Current Assets $6,871,000 $4,122,000 $2,627,000 Total Current Assets $40,824,000 $26,388,000 $20,724,000 $28,274,000 $22,029,000 $18,686,000 Current Assets Long-Term Assets Long-Term Investments Fixed Assets $10,568,000 $2,932,000 $2,107,000 Goodwill $25,772,000 $18,198,000 $12,624,000 Intangible Assets Other Assets $5,856,000 $2,686,000 $2,728,000 $1,263,000 $1,275,000 $902,000 Deferred Asset Charges $0 $113,979,00 $0 $0 $73,538,000 $56,318,000 Total Assets Current Liabilities Accounts Payable $15,076,000 $7,706,000 $4,657,000 Short-Term Debt / Current Portion of Long-Term Debt $1,443,000 $2,498,000 $665,000 Other Current Liabilities $5,066,000 $3,372,000 $2,723,000 Total Current Liabilities $21,586,000 $13,576,000 $8,046,000 Long-Term Debt $18,997,000 $11,149,000 $8,235,000 Other Liabilities $325,000 $187,000 $335,000 Deferred Liability Charges $3,227,000 $1,596,000 $1,066,000 Misc Stocks $477,000 $434,000 $54,000 Minority Interest $11,224,000 $6,142,000 $5,033,000 Total Liabilities $55,836,000 $33,084,000 $22,768,000 Common Stocks $0 $0 $0 Capital Surplus $29,684,000 $23,881,000 $20,441,000 Retained Earnings $27,394,000 $15,752,000 $12,176,000 Treasury Stock ($355,000) ($410,000) $0 Stock Holders Equity Other Equity $1,421,000 $1,230,000 $932,000 Total Equity $58,144,000 $40,454,000 $33,550,000 Total Liabilities & Equity $113,980,00 $73,538,000 $56,318,000 1.3 Cash Flow (Millions) Period Ending: 3/31/2018 3/31/2017 3/31/2016 Net Income $10,187,000 $6,337,000 $11,049,000 Depreciation $3,542,000 $2,112,000 $1,131,000 Net Income Adjustments $3,082,000 $2,508,000 ($4,441,000) Accounts Receivable ($102,000) ($367,000) $0 Changes in Inventories Other Operating Activities $0 ($2,126,000) $0 ($1,068,000) $0 ($679,000) Liabilities $5,738,000 $2,488,000 $1,754,000 Net Cash Flow-Operating $19,895,000 $11,655,000 $8,788,000 Capital Expenditures Investments ($4,102,000) ($8,490,000) ($1,773,000) ($4,037,000) ($841,000) ($4,831,000) Other Investing Activities ($742,000) ($5,561,000) ($952,000) Net Cash Flows-Investing ($13,333,000) ($11,371,000) ($6,622,000) Sale and Purchase of Stock Net Borrowings $242,000 $5,300,000 $443,000 $4,256,000 ($2,945,000) $383,000 Other Financing Activities ($2,288,000) $0 $0 Net Cash Flows-Financing $3,236,000 $4,776,000 ($2,450,000) Effect of Exchange Rate ($964,000) $296,000 $72,000 Net Cash Flow $8,833,000 $5,357,000 ($213,000) Financial ratio analysis 2.1 Liquidity 2.1.1 Current ratio The current ratio measures a company’s ability to pay both short and long-term debts If the ratio is below one, this would indicate a company’s inability to pay off its liabilities after depleting cash and cash equivalents and liquidating its assets Acceptable current ratios vary from industry to industry and are generally between and for healthy businesses However, a ratio that is abnormally high would indicate that the company is not managing their working capital successfully Formula: Current ratio= Current assets Current liabilities In 2017, Alibaba = $26,388,000/$13,576,000 = 1.94 times Amazon = $60,197,000/$57,883,000 = 1.04 times Ebay = $7,743,000/$3,539,000 = 2.19 times The current ratio of 1.94 could say that Alibaba has $1.94 in current assets for every $1 in current liabilities, or we could say Alibaba has its current liabilities cover 1.94 times over Obj ect5 As we can see, Alibaba reaches its highest point of 3.58 in 2015 However, from then until now, this ratio has decreased from 3.58 times to 1.89 times This is because the total Current Liabilities of Alibaba has increased much faster than the Total Current Assets The Total Current Asset has been nearly double in the 2015-2018 period from $22,292,000 to $40,824,000 while the total Current Liabilities index in 2018 is times higher than the index in 2015 (from $6,399,000 to $21,586,000) Obj ect7 As we can see from the graph, each company has a current ratio greater than one which shows that each company can pay back their liabilities eBay has the highest current ratio of 2.19 times compared to the other two company: Alibaba 1.94 times and Amazon has the lowest ratio of 1.04 times Looking deeper, Amazon’s current ratio should make any manager and investor nervous Their 2017 current ratio of 1.06 barely passes the threshold If this subpar current ratio for Amazon continues, it could pose a significant risk in terms of meeting their current obligations Alibaba and Ebay’s 2017 current ratio poses no concern at this time 2.1.2 Quick ratio The quick ratio known as the acid- ratio measures a company’s ability to pay current liabilities with quick assets (current property that can convert into cash within 90 days) A ratio of greater than one indicates that a company has $1.00 plus and change to cover its current liabilities A ratio less than one would indicate a company’s inability to cover 100% of its current liabilities with quick assets However, a ratio of 4:1 is not good for a business as this implies that the business has times idle current assets against the requirement of These idle assets could have been utilized to make extra money consequently contributing to net profits Formula: Quick ratio= Current assets – Inventory Current liabilities In reality, Alibaba and eBay model is different from Amazon model They not buy products from brands as Alibaba serve as a marketplace, a bridge between the seller and the buyer through data Technically, Alibaba is just a commerce platform so they don’t have inventories in their balance sheet so basically, the quick ratio is not much different from the Current ratio for Alibaba 2.1.3 Cash ratio This ratio is commonly used by short-term lenders as it measures a company’s liquidity and how it can service its debt a cover its short-term liabilities A ratio greater than one suggests that a company has enough cash and cash equivalents to pay off all short-term debts and still has cash remaining If the ratio is less than one, a company does not have a sufficient level of cash and cash equivalents to pay off its short-term debt Formula: Cashratio= Cash Current liabilities In 2017, Alibaba = $21,241,000/$13,576,000 = 1.56 times Amazon = $20,522,000/$57,883,000 = 0.35 times Ebay = $2,120,000/$3,539,000 = 0.6 times Obj ect13 As we can see clearly from the graph, Alibaba’s cash ratio has been decreased from 2.79 to 1.49 times from 2015 to 2018 as the increase speed of Cash account was smaller than the increase speed of Current Liabilities account The cash account has increased by 1.8 times from $17,822,000 to $32,221,000 while the Current Liabilities has increased by more than 3.7 times Obj ect16 Alibaba has the highest cash ratio which measures a company’s short-term liquidity and determines how well a company can cover its debt and short-term liabilities Although this ratio is a more reliable indicator of a company’s current liquidity, it doesn’t represent the entire picture Amazon and Ebay ratio are smaller than which indicate these two companies may not have a sufficient level of cash and cash equivalents to pay off its short-term debt In conclusion, Cash ratio of Alibaba is safe 2.2 Asset management/Turnover Ratios The asset management (turnover) is a measure of a company’s ability to use its assets to generate sales or revenue and is a calculation of the number of sales or revenue generated per dollar of assets A higher number is preferable since it suggests that the company is using its assets efficiently to generate profit Low turnover ratios mean that the company is not managing its assets wisely They may also indicate that the assets are obsolete Because Alibaba does not have the inventories or net receivables index so we will not use some ratios related to inventory and receivables for exact results when comparing the three companies such as inventory turnover, day’s sales in inventory, receivable turnover, and day’s sale in receivable Instead, we will take a closer at other ratios like NWC turnover, fixed assets turnover, total asset turnover Some of the asset management ratios are listed as followed: 2.2.1 Inventory turnover Inventory turnover is a measure of the number of times inventory is sold or used in a given time period such as one year It is a good indicator of inventory quality, efficient buying practices, and inventory management Formula Inventory turnover= Cost of goods sold Inventory Alibaba does not hold any inventory Amazon (accounted for 12/31/2017) ¿ $ 111,934,000 $ 16,047,000 = 6.98x Amazon’s inventory turns 6.98 times per year and held approximately 52 days Ebay does not hold any inventory Assessment: Alibaba and eBay has a zero level of inventory while Amazon still has normal inventory The reason lies in the difference of business model Unlike Amazon, Alibaba Group holds no inventory and owns no warehouses Rather, Alibaba has created software platforms that facilitate the exchange of goods and services On the other hand, Amazon has to maintain and develop the expensive and complex logistics of a network of warehouses to ship products directly to shoppers Alibaba’s zero inventory makes them attractive for an acquisition 2.2.2 Net working capital turnover The net working capital turnover ratio measures how well a company is utilizing its working capital to support a given level of sales Working capital is current assets minus current liabilities It also shows how much revenue is generated from investing $1 of net working capital A high turnover ratio indicates that management is being extremely efficient in using a firm's short-term assets and liabilities to support sales Conversely, a low ratio indicates that a business is investing in too many accounts receivable and inventory assets to support its sales, which could Amazon = ($131,310,000-$27,709,000)/$131,310,000= 0.79 Ebay = ($25,981,000-$8,063,000)/$25,981,000 = 0.69 Obj ect64 As we can see from the graph, Alibaba’s total debt ratio decreased from 2015 to 2016 (0.43 to 0.4 times) However, from 2016 to 2018, this ratio has increased, that shows Alibaba is unwilling or unable to pay down its debt, which could indicate a default at some point in the future Obj ect66 According to the graph, for every dollar of asset, Alibaba has 45 cents of debt, Amazon has 79 cents and Ebay has 69 cents of debt These three companies have total debt ratio of less than 1, which 14 shows that they have more assets than liabilities and could pay off their obligations by selling their assets if it needed to However, Alibaba is the least risky of the three companies 2.3.2 Debt/security ratio Debt/security ratio measures how much debt a company is using to finance its assets in relation to shareholder’s equity A debt ratio of means that there are half as many liabilities as there is equity In other words, the assets of the company are funded 2-to-1 by investors to creditors A debt to equity ratio of would mean that investors and creditors have an equal stake in the business assets A lower debt to equity ratio usually implies a more financially stable business Companies with a higher debt to equity ratio are considered riskier to creditors and investors than companies with a lower ratio Formula: Debt /equity ratio= Totaldebt Total equity In 2017, Alibaba = ($73,538,000-$40,454,000)/$40,454,000 = 0.82x times Amazon = ($131,310,000-$27,709,000)/$27,709,000 = 3.74x Ebay = ($25,981,000-$8,063,000) / $8,063,000 = 2.22x Obj ect71 As we can see, from 2015 to 2016 this ratio decreased from 0.76 to 0.68 Conversely, it has increased from 2016 to 2018 which shows that the investors are less ready to fund the operation as much the creditors In this period, the debt has increased much faster than the increase in equity The debt has increased nearly 2.5 times from $22,768,000 to $55,836,000 when the equity has 15 increased 1.7 times Generally, Alibaba’s D/E ratio is less than However, with this trend keeps increasing, Alibaba might face a problem with financing by investors Obj ect73 Alibaba’s D/E ratio is conservative and considered low-risk Amazon and Ebay’s high D/E ratio might be high-risk and unpredictable because it shows that the investors haven’t funded the operations as much as creditors have In other words, investors don’t have as much skin in the game as the creditors This could mean that investors don’t want to fund the business operations because the companies are not performing well Lack of performance might also be the reason why the companies are seeking out extra debt financing 2.3.3 Equity multiplier The equity multiplier is a financial leverage ratio that measures the amount of a firm’s assets that are financed by its shareholders by comparing total assets with total shareholder’s equity In other words, the equity multiplier shows the percentage of assets that are financed or owed by the shareholders Generally, a lower equity multiplier indicates a company has lower financial leverage It is better to have a low equity multiplier, because that means a company needs to use less debt to finance its assets Formula: Equity Multiplier = Total assets / Total Stockholder’s Equity As of March 2018, Alibaba = $113,979,000 / $58,144,000 = 1.96x 16 Obj ect75 The equity multiplier of 1.96 indicates that 196% of assets that are owned by shareholders The increasing trend shows that more assets were funded by debt than by equity This is also can be explained by the increase in debt of Alibaba like in the debt-equity ratio Obj ect78 In comparison with the others two companies, Alibaba has the lowest equity multiplier which make it becomes the safest company because Amazon and eBay may have to use more debt to finance its assets purchased A lower equity multiplier is preferred because it indicates that the company is taking on less debt to buy assets 17 Overall, Alibaba is preferred to Amazon and eBay because it carries less risk 2.4 Profitability Profitability ratios are financial metrics used by analysts and investors to measure and evaluate the ability of a company to generate income (profit) relative to revenue, balance sheet assets, operating costs, and shareholders’ equity during a specific period of time They show how well a company utilizes its assets to produce profit and value to shareholders 2.4.1Proft margins The net profit margin indicates how well the company converts its sales into profits, and how its expenses correlate with those of other similar companies It's both a measure of efficiency and of overall business health Companies that generate greater profit per dollar of sales are more efficient Companies with high net profit margin ratios are also better able to survive a product line that doesn't meet expectations or a period of economic contraction Formula Profit margin= Net Income Sales As of March 2018, $ 10,187,000 =25.6 % Alibaba ¿ $ 39,777,000 The profit margin of 25.6% tells us that Alibaba generates a 25.6 cents in profit for every dollar in sales Obj ect84 Alibaba reaches its highest point of 70.65% in 2016; however, this ratio since 2017 has been remain relatively stable at more than 25% The explanation for this decrease is that from 2016-2018, Alibaba has increased its operating expense in research, sales administration, etc According to the Income statement, it seems to times higher in 2018 18 Obj ect86 Alibaba has the highest ratio compare to the others two companies; Amazon with 1.72%, and eBay has a negative ratio with nearly -11% Ebay negative net income could be explained by the fact that the amount of tax delivered from GAAP net loss from continuing operations of $2.6 billion, or $(2.51) per diluted share primarily driven by a $3.1 billion tax charge attributable to the enactment of the Tax Cuts and Jobs Act Overall, Alibaba has a good and satisfactory ratio compare to others company in the industry 2.4.2 ROA Return on assets (ROA) is a financial ratio that shows the percentage of profit a company earns in relation to its overall resources ROA answers the question: "What can you with the assets that you have available?" The higher the ROA, the better the management Formula: Net Income Total assets As of March 2018, 10,187,000 =¿ 8.93% Alibaba ¿ 113,979,000 ROA= 19 Obj ect92 The 8.93% ratio shows that for Alibaba could generate nearly cents of profit per dollar of assets Beside a big improvement in 2016, Alibaba ROA does not show much fluctuation The decrease in net income in 2017 due to the expense in operating expense may be the reason for this Obj ect94 In general, the higher the ROA the better Compare to the others two competitors, Alibaba once again shows that it has the advantage ROA of Alibaba is more than times higher than Amazon while Ebay still has a negative ratio because of its negative net income But this measure is best applied in comparing companies with the same level of capitalization The more capital-intensive a business is, the more difficult it will be to achieve a high ROA Overall, we could conclude that ROA of Alibaba is good 2.4.3 ROE Return on equity (ROE) is a measure of how many dollars of profit a company generates with each dollar of shareholders' equity 20 ROE is more than a measure of profit; it's a measure of efficiency A rising ROE suggests that a company is increasing its ability to generate profit without needing as much capital It also indicates how well a company's management is deploying the shareholders' capital In other words, the higher the ROE the better Falling ROE is usually a problem ROE= Net Income Total Equity As of March 2018, Alibaba ¿ 10,187,000 =17.53 % 58,144,000 For every dollar in equity, Alibaba generated less than 18 cents in profit Obj ect100 In 2016-2017 period, there was a sharp decrease from 33% to 16% From 2017 to 2018, ROE slightly went up to 18% The sharp decrease in 2017 once again because of the decline in net income 21 Obj ect103 Compare with other companies like Amazon and Ebay ROE of Alibaba is higher than ROE of Amazon nearly 6% From an investor’s perspective, as he/she uses ROE to judge how efficiently the firm will be able to use his/her investment to generate additional revenues, he/she may choose Alibaba 2.5 Market value measure Market value ratios are used to evaluate the current share price of a publicly-held company's stock These ratios are employed by current and potential investors to determine whether a company's shares are over-priced or underpriced The most common market value ratios are as follows: 2.5.1 Price Earnings ratio Price Earnings ratio (P/E) is a market prospect ratio that calculates the market value of a stock relative to its earnings by comparing the market price per share by the earnings per share In other words, the price earnings ratio shows what the market is willing to pay for a stock based on its current earnings P/ E= Market price per share Earnings per share Earnings per share (EPS)= Net Income Shares Outstanding As of March 2018, Alibaba with net EPS = $3.72, stock price = 183.54 P/E = 183.54 / 3.72 = 49.34 22 Obj ect109 As we can see from the data table, Amazon has the highest PE ratio with 182.28 on 31st March, 2018 The PE ratio of Alibaba and Ebay shared the same number in March 2016 However, while Alibaba ratio has increased steadily to nearly 50 over the years, Ebay ratio has felt to because of its negative net income We can conclude that investors anticipate higher performance and growth in the future of Amazon and Alibaba On the other hand, Ebay may have poor current and future performance This could prove to be a poor investment 2.5.2 Price-sales Ratio The price-to-sales ratio helps determine a stock’s relative valuation It is a financial metric that measures the value investors put on a company for each dollar of revenue generated by the firm by comparing the stock price with total revenue This ratio is widely used because it states the valuation of a company in context of one the easiest to understand financial metric (i.e revenue) from investor point of view Generally, the lower the ratio the better it is as it might indicate undervaluation of a company P/S ratios between and are generally considered good, and ratios less than are considered excellent Formula: Price−sales Ratio= Price per Share Sales per share As of March 2018, Alibaba with stock price = 183.54, Sales per share = $15.29 Price – sales ratio = 183.54 / 15.29 = 12.00 23 Obj ect113 Amazon has the safest P/s ratio with just around Though Ebay has a net loss, its Price-to-sale ratio could still can be considered safe Alibaba ratio is the highest when it was always around 12 or higher Luckily, the ratio has slightly decrease to below as of September 2018 In conclusion, P/S ratio of Alibaba is not as good as the others two companies 2.5.3 Market –to-book ratio (P/B) The market to book financial ratio, also called the price to book ratio, measures the market value of a company relative to its book or accounting value Book value is calculated by looking at the firm's historical cost, or accounting value Market value is determined in the stock market through its market capitalization In basic terms, if the ratio is above then the stock is undervalued; if it is less than 1, the stock is overvalued A ratio above indicates that the stock price of a company is trading for less than the worth of its assets A high ratio is preferred by value managers who interpret it to mean that the company is a value stock, that is, it is trading cheaply in the market compared to its book value A book-to-market ratio below implies that investors are willing to pay more for a company than its net assets are worth This could indicate that the company has healthy future profit projections and the investors are willing to pay a premium for that possibility Technology companies, and other companies in industries which not have a lot of physical assets, tend to have a low book-to-market ratio Formula: Market−¿ −book ratio= Market value per share Book value per share 24 Obj ect117 In 2015 period, we can see from the chart that Amazon far exceeds its competitors which is the ratio may be overvalued The market-to-book ratio of Alibaba overall can be seen that it has increase slightly over the 2015-2018 period (from 6.78 to 8.18) This ratio is much higher than which means the investor are willing to pay more for a company than its net assets are worth In conclusion, the market-to-book of Alibaba is satisfactory enough 25 Ratio analysis Key ratio Liquidity Asset Management / Turnover ratio Leverage Profitability Market Value Current Ratio Quick Ratio Cash Ratio Inventory turnover NWC turnover Fixed asset turnover Total Asset turnover Total Debt ratio Debt - Equity ratio Equity multiplier Long-term debt ratio Profit margin ROA ROE Aftertaxed P/E Ratio Price-sales ratio Market-tobook ratio (P/B) Alibaba Amazon 3/2018 3/2017 3/2016 12/2017 189% 189% 149% 194% 195% 156% 258% 258% 208% 104% 76% 35% - - - 6.98x Ebay 12/2017 Analysis 219% 219% Highly liquid 60% - 2.06 1.79x 1.23x 76.87x 2.2756x 3.76x 7.83x 7.42x 4.6x 5.9906x 0.35x 0.31x 0.28x 1.35x 0.3682x 0.49x 0.45x 0.4x 0.79x 0.6896x 0.96x 0.82x 0.68x 3.74x 2.22x 1.96x 1.82x 1.68x 4.74x 3.2222x 0.25x 0.22x 0.2x 0.47x 0.5338x 26% 9% 28% 9% 71% 20% 2% 2.31% -10.62% -3.91% 18% 16% 33% 11% -12.60% 49.34x 43.31x 17.92x 190.16x - 12x 12.05x 12.9x 3.24x 4.27x It is better than its peer It carries least risk It is profitable enough It is good 6.78x 5.85x 26 5.05x 20.43x 4.82x III Conclusion Alibaba’s ability to cover its debt and short-term liabilities is safe comparing with Amazon and Ebay The company has enough cash and cash equivalents to pay off all short-term debts and still has cash remaining Asset management is not as efficient as industry, but considerably satisfactory management in using working capital to support sales Debt ratio is considered to be low-risk Alibaba is the safest of the three companies while Amazon and Ebay might be high-risk and unpredictable Alibaba has a good and satisfactory profitablity ratio in comparison with the industry The market value of the company is satisfactory enough in the industry Overall, Alibaba’s performance is less risky and quite profitable as the industry Based on the risk tolerant, risk lover investors may choose Amazon for higher profit and riskier probability whereas other investors may invest their funds in Alibaba’s stock for safer asset We draw a conlusion that we make decision on buying Alibaba’s stock for some reasons as followed: - - - Alibaba is big giant of the e-commerce industry and have established a strong leading brand presence in their home territories - China over 20 years It is worth investing in a highly reputable company that has profitability with safety Alibaba is still a growing company and its potential of development in the industry is improving significantly Alibaba serves about 80% of the Chinese e-Commerce market where population density is extremely high Not developed markets, developing markets hold the most potential for online growth, also China is now leading the race in terms of maximizing the potential of the Internet compared with the Western countries The lowcost, widely available telecommunication infrastructure in China has increased the popularity of online shopping Therefore, Alibaba that dominates the world’s largest eCommerce market has an edge over its competitors Alibaba tends to constantly expand their presence around the globe as there are still many parts of the world where online retail markets remain undeveloped and untapped It is expanding its logistic net around the world and wants to connect its global ecommerce markets Overall, the Chinese e-commerce giant now looks like a very compelling investing opportunity BABA’s stock is regarded as a Strong Buy 27 IV References Company Overview – Alibaba Group Source: https://www.alibabagroup.com/en/about/overview BABA, AMZN, EBAY Company Financials Source: https://www.nasdaq.com Alibaba Group Holding Limited (BABA) (2018) Source: https://finance.yahoo.com/quote/BABA?p=BABA&.tsrc=fin-srch Macro trends Source: https://www.macrotrends.net/stocks/charts/BABA/alibaba/price-sales https://www.macrotrends.net/stocks/charts/EBAY/ebay/pe-ratio https://www.macrotrends.net/stocks/charts/AMZN/amazon/pe-ratio 28 ... market-to-book of Alibaba is satisfactory enough 25 Ratio analysis Key ratio Liquidity Asset Management / Turnover ratio Leverage Profitability Market Value Current Ratio Quick Ratio Cash Ratio Inventory... In this report, we will use the financial ratio analysis to evaluate the performance of Alibaba, Amazon, and eBay Ratio analysis is a powerful tool for financial analysis This method is used as... categories like liquidity ratios, leverage ratios, profitability ratios, and efficiency ratios help in analyzing the overall health of the company II Findings Financial Statements of Alibaba (2016-2018)