group assignment financial statements of alibaba

It explains to investors and analysts how an organization can utilize itscurrent assets on its balance sheet to pay down its current debt and other payables.The higherthe current ratio,

GROUP ASSIGNMENT2020 & 2021

FINANCIAL STATEMENTS OF ALIBABA

Lecturer: Trần Ngọc ChâuGroup: TieuTrucClass: MKT1707

Group memberLý Hoàng Duy SS170988Đặng Nam Cường SS170925Lý Quốc Thái SS171043Trương Tiểu Trúc SS170928ACC101: Principles of AccountingFPT University HCM, November 9, 2022

1 About Alibaba……… 2 History………3 Strengths and weaknesses of the company……… II.Analysis sections

1 Qualitative analysis of the business……… 2 Quantitative analysis of the business………

(Analyze ratios of the Alibaba)

III.Conclusion and recommendations……….1 Conclusion………2 Recommendations………

What is Alibaba ?

Alibaba is an online platform that connects manufacturers and wholesalers in China with individualsand businesses around the world who want to trade or resell Users who buy products for theirbusiness and then use or resell them or register as a supplier are looking to use Alibaba as a salesplatform.

On 28 June 1999, Jack Ma, with 17 friends and students founded Alibaba.com, a China-based B2Bmarketplace site, in his Hangzhou apartment In October 1999, Alibaba received a 25$ millioninvestment from Goldman Sachs and SoftBank.

1 Size And Scale

One of Alibaba's most important strengths is its size and scale The company has a wide range ofactivities, which is difficult for competitors to imitate The market in which it operates alsostrengthens Alibaba's position The company has more than 750 million active users, more than thepopulation of the United States

2 Market Share

Alibaba is one of the oldest companies in the online retail market and holds a large market share.Currently, the company holds nearly 58% market share in China Its closest competitor, on the otherhand, retains only 22% of the market share This shows that Alibaba has a competitive advantage overother companies based on a percentage of the market.

One of the factors that differentiates Alibaba from its rivals is its strong leadership From the founder,Jack Ma, to the current leadership, the company enjoys strong leadership Acquiring these key peopleinto leadership positions has helped the company multiply successfully.

1 Crowded Marketplace

The company and its platform have compensated its partners However, it also built a crowded marketplace There are a large number of sellers who use this platform to sell their products For customers,it is difficult to choose the best suppliers Some well-known brands also stopped working on theplatform due to this condensation Overall, this is one of Alibaba's weak points.

2 Research And Development

Although Alibaba has spent on its research and development, Alibaba has lagged behind itscompetitors The company has not maintained the same standards as other big names in the industry.This leads to failure for the company while competitors gain a competitive advantageS

Dependence On A Single Market

As mentioned above, Alibaba derives a significant portion of its revenue from the Chinese market.The company was overly dependent on the market for its profits Its competitors found betteralternatives to reduce this dependence increase.

• Provide a quantitative and qualitative analysis of the business.

o Analyze any ratios of the company spread over those related to profitability, liquidity, solvency andmarket tests (The more ratios you analyze the higher grade you will get)

II QUANTIATIVE & QUALITATIVE

Ratios of the Alibaba company 2020-2021

1.70

7 Solvency Ratio Debt-To-Equity Ratio 0.49 0.55

Ratios of the Amazon company 2020-2021

1.1.1 Current Ratio

The current ratio is the liquidity ratio that evaluates a company's capacity to pay short-term orone-year obligations It explains to investors and analysts how an organization can utilize itscurrent assets on its balance sheet to pay down its current debt and other payables.The higherthe current ratio, the greater the debt repayment capacity of the business

Formula: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

CURRENT RATIO OF ALIBABA 2020-2021

AnnualCurrent AssetsCurrent LiabilitiesCurrent Ratio

CURRENT RATIO OF AMAZON 2020-2021

AnnualCurrent AssetsCurrent LiabilitiesCurrent Ratio

According to the table, we can see that the current ratios of Alibaba in both years are larger than 1.But when we compared to Amazon Inc, Alibaba's index is on a downward trend (unable to payshort-term debt) In 2020, Alibaba had almost the current ratio 1.05 (can pay shori-term debt) In2021, it dropped to 1.14 compared to Amazon Company In 2021, the current ratio shows that thecompany has sufficient short-term assets to pay short-term debts.

Quick ratio: The quick ratio measures a company's ability to pay current creditors without sellinginventory or obtaining extra financing.

Formula: 𝑄𝑢𝑖𝑐𝑘 𝑟𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 =𝐶𝑎𝑠ℎ & 𝑆𝑇 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡𝑠 + 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

QUICK RATIO (ACID-TEST RATIO) OF ALIBABA 2020-2021

AnnualCurrent Assets - InventoryCurrent LiabilitiesQuick Ratio(Acid-Test Ratio)

QUICK RATIO (ACID-TEST RATIO) OF AMAZON 2020-2021

AnnualCurrent Assets - InventoryCurrent LiabilitiesQuick Ratio(Acid-Test Ratio)

As we can see, the Quick Ratio in both years are high (0.73 in 2020 and 0.64 in 2021) The higher theQuick Ratio, the larger the business needs to recover the working cash This is not a good signbecause the company's ability to pay on time is not high However, there is a downward trend ofQuick ratio from 2020-2021.

1.2 Efficiency Ratio1.2.1 Inventory Turnover

Inventory turnover: Inventory turnover is a ratio used to determine how many times a company sellsits inventory during a period Indicator of how well management is controlling the amount ofinventory available.

Formula: 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

INVENTORY TURNOVER OF ALIBABA 2020-2021

AnnualCost of goods soldInventoryInventory turnover

Alibaba’s inventory turnover from 2020-2021 is facing a downward trend (19.46→16.73) The reasonto this may be because Alibaba has gone through severe COVID-19.

INVENTORY TURNOVER OF AMAZON 2020-2021

AnnualCost of goods soldInventoryInventory turnover

In general, this index is on a decreasing trend in the period of 2020-2021 of Alibaba and Amazon(Alibaba in 2020 it will decrease by 2.73 compared to 2021, Amazon in 2021 it will decrease by 0.8compared to 2020) The main reason is the high inventory turnover held by companies Due toindustry characteristics and fierce price competition, the inventory turnover rate of Alibaba andAmazon companies is very low This proves the stagnant inventory management capabilities of bothcompanies.

1.2.2 Day's Sales in Inventory

Day’s sale in inventory: Days’ Sales in Inventory is a ratio that reveals how much inventory isavailable in terms of the number of days’ sales.

Formula: 𝐷𝑎𝑦'𝑠 𝑠𝑎𝑙𝑒 𝑖𝑛 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑× 365 𝑜𝑟 = 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟

DAY’S SALE IN INVENTORY OF ALIBABA 2020-2021

DAY’S SALE IN INVENTORY OF AMAZON 2020-2021

However, when we compare Amazon and Alibaba, we can see that DSI of Amazon is higher than DSIof Alibaba And the smaller the DSI, it might shows that the company operate more efficiently andregularly sell off inventory, which means quick turnover leads to higher profit potential.

1.2.3 Accounts Receivable Turnover

- Account Receivable Turnover Ratio or Debtor's Turnover Ratio is an accounting measureused to measure how effective a company is in extending credit as well as collecting debts.The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses itsassets

- Formula=𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠

ACCOUNTS RECEIVABLE TURNOVER OF ALIBABA 2020-2021

AnnualNet salesAccount ReceivableAccount ReceivableTurnover

ACCOUNTS RECEIVABLE TURNOVER OF AMAZON 2020-2021

AnnualNet salesAccount ReceivableAccount ReceivableTurnover

A higher number is better Based on the increasing of Alibaba’s ratio, it shows the ability toeffectively collect receivables and debts from customers of Alibaba It also shows that the company iscautious in granting credit to customers A prudent credit policy can be beneficial because it helps acompany to somewhat prevent bad debt risk.

Account receivable turnover ratio of 2020 is quite low in comparison with the one of 2021 Theproportion slightly increase in 2021, with the rate being 26.5.

+ Overall, Alibaba's and Amazon’s quality and liquidity were so good that the company waswell received and collected by consumers.

+ However, an overrall conservative credit policy can deter potential customers.+ Therefore, although accounts receivable turnover may be lower, it may be better to relax

credit policies to improve sales.

1.2.4 Total asset turnover

- Total asset turnover is the ratio of net sales or revenue to average total assets This ratiodetermines the ability to generate sales and earn income, and helps investors understand howeffectively and efficiently companies are using their assets to operate The higher ratioindicates the more efficient in using the assets

- Formula = 𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

TOTAL ASSET TURNOVER OF ALIBABA 2020-2021

TOTAL ASSET TURNOVER OF AMAZON 2020-2021

IV.Conclusion and recommendatio1.Conclusion

Based on the results of the literature review and the survey of our team The research team reached anumber of conclusions regarding Alibaba company:

In 2021, almost all radios are lower than the previous year This shows the more it shows thatthe company is able to pay its debts

After Covid 19 most of the Efficiency Ratios quite fluctuations, this can be seen in theInventory Turnover Ratio which has decreased from the previous year and the company'sproduct is in decreased demand Whereas, the DSI radio had higher than in 2020, indicatingthe liquidity of the inventory, the figure represents how many days a company's currentinventory stock will last a large DSI ratio suggests that the company may be struggling withobsolete or they are holding stock

2 Recommendations

Current ratio:

Evaluate the overall costs of the business and see if there are opportunities to cut them Cuttingunnecessary costs will have a direct impact on profits Operating expenses, such as hiring, advertising,indirect labor or office costs To accomplish this task, enterprises need to develop an effectivemanagement mechanism for capital and production and business costs in the direction of a revenueand expenditure structure suitable to cutting input costs Not only that, the spending managementsystem gradually automates and promotes decentralization in order to balance the spending ratio andin line with business development goals in each period and ensure financial safety enterprise.Inventory Turnover

One of the key factors for success is a superior inventory management method, which helps promotebusiness growth That's also the key to Amazon's unique value: wide selection, low prices, fast andconvenient delivery.

● Applying technology to goods management and storage● Simplify the warehouse import and export process

● Robot application in inventory management operationDay’s sales in inventory

Managing inventory levels is vital for most businesses, and it is especially important for retailcompanies or those selling physical goods

● Demand planning

On the other hand, storing too many items will increase storage and transportation costs It alsoincreases your risk because demand for those items may drop before you sell them It's important toanticipate and carefully plan demand levels to keep enough supplies in stock without ever falling toolow or overstocking any given item.

Total assert turnover

Price decreases led to increased consumer traffic, which fostered an increase in revenue and attractedmore third-party sellers to the site Amazon could then better leverage its fixed assets like theirfulfillment centers and servers This increase is asset utilization enabled Amazon to further decreaseprices Make improvements at any juncture, Bezos reasoned, and it should enhance the entire process.In the early 2000s, we can see this strategy play out in Amazon’s asset turnover ratio, which measuresrevenue divided by assets The ratio shows how much revenue a company can generate with eachdollar of assets and is therefore an optimal benchmark for efficiency and productivity Amazondestroyed competitors like Barnes & Noble and Borders with dramatic increases in asset turnover.

Amazon Financial Ratios for Analysis 2009-2022 | AMZN | MacroTrends (n.d.).

SWOT Analysis of Amazon | Amazon Strengths & Weaknesses 2021 (n.d.) Swot Analysis

Bellucco, A (n.d.) Profitability Ratios Definition Investopedia Retrieved August 9, 2022,fromhttps://www.investopedia.com/terms/p/profitabilityratios.asp\

Amazon Financial Statements 2009-2022 | AMZN | MacroTrends (n.d.) Macrotrends.

https://www.investopedia.com/terms/d/days-sales-inventory-dsi.asphttps://finance.yahoo.com/quote/BABA/