Course Title: Accounting Principles

Course Code: BUS 505

Mid Term 2

Title: A Report on Alibaba Group’s Financial Health Analysis

Submitted By

Name of the Group Members NSU ID

Nayeem Ahamed 2215211660
Tirtho Tariq 2135080660
Suraya Islam 2135036660
Md. Ibtida Fahim 2215057660

Submitted To

Professor Dr. Mohammad Istiaq Azim

Professor of Management
MBA Program
School of Business
North South University

Word Count:

Date of Submission: April 30, 2022

A Brief Introduction of the Company-
IF NOT NOW, WHEN? IF NOT ME, WHO?
This was a tagline in ALIBABA’S first job advertisements & become their first proverb.
Alibaba is a Chinese multinational technology company specializing in e-commerce, retail, Internet,
and technology. Founded on 28 June 1999 in Hangzhou, Zhejiang, the company provides consumer-
to-consumer, business-to-consumer, and business-to-business sales services via web portals, as well as
electronic payment services, shopping search engines and cloud computing services. The company's
name came from the character Ali Baba from the Middle Eastern folk-tale collection One Thousand
and One Nights because of its universal appeal. Their mission is to make it easy to do business
anywhere. Alibaba brings hundreds of millions of products in over 40 different major categories,
including consumer electronics, machinery, and apparel. Buyers for these products are located in more
than 190 countries and regions, and exchange hundreds of thousands of messages with suppliers on the
platform each day. Their core commerce business is comprised of the following businesses:
• Retail commerce – China
• Wholesale commerce – China
• Retail commerce – cross-border and global
• Wholesale commerce – cross-border and global
• Logistics services
• Consumer services
Their strategies are that they will continue to innovate in the areas of business models, products and
services, and technology to create value for both consumers and businesses. Their new Retail strategy
is to develop a digital commerce infrastructure that offers an upgraded consumer experience by
seamlessly integrating online and offline capabilities & they continue to constantly incubate new
business models, enable traditional retail partners to digitally transform their operations and drive
ongoing innovation on our established platforms. As we can see, according to 2020 Analysis
Alibaba.com is China’s largest integrated international online wholesale marketplace in terms of
revenue. Today, Alibaba has evolved into a multi-engine company with businesses across different
runways. Alibaba is committed to doing part in supporting the infrastructure development of the
digital economy.
Financial Health Analysis
Current ratio:
The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its
short-term obligations.
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 65,377
Current Ratio (2020) = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 =𝟑𝟒𝟏𝟓𝟗 =1.913
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 98,196
Current Ratio (2021) = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 =𝟓𝟕,𝟓𝟗𝟔= 1.705

Current Ratio
1.95
1.9
1.85
1.8
1.75
1.7
1.65
1.913 1.6
1.55
1.5
1.705

2021 2020
Year

As can be seen from the calculations in 2020 Alibaba’s Current Ratio is 1.913 and in 2021 current
ratio becomes 1. 705. So, it is decreased in 2021. Generally, a decrease in current ratio means that
there are problems with management, ineffective or lax standards for collecting receivables, or an
excessive cash burn rate. It means that management may not using its assets efficiently.

Accounts Receivable Turnover:

Receivable Turnover Ratio or Debtor's Turnover Ratio is an accounting measure used to measure how
effective a company is in extending credit as well as collecting debts.
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 71985 71985
Accounts Receivable Turnover (2020) =𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑒𝑡 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑖𝑣𝑒𝑎𝑏𝑙𝑒𝑠 = (𝟒𝟐𝟖𝟔.𝟕𝟓+𝟖𝟏𝟖𝟗/𝟐=6237.87=
11.54
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 109480 109480
Accounts Receivable Turnover (2021) = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑒𝑡 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑖𝑣𝑒𝑎𝑏𝑙𝑒𝑠
= (𝟖𝟏𝟖𝟗+𝟏𝟓𝟎𝟐𝟒)/𝟐=11606.5=
9.432
 Accounts Receivable Turnover

12
10
8
11.54
6 9.432
4
2
0
2020 2021
YEAR

As can be seen from the calculations in 2020 Alibaba’s Accounts Receivable Turnover is 11.54 and in
2021 Accounts Receivable Turnover becomes 9.432. So, it is decreased in 2021. A low turnover ratio
typically implies that the company should reassess its credit policies to ensure the timely collection of
its receivables. It means that company is seeing more delinquent clients.

Return on Equity:
The return on equity is a measure of the profitability of a business in relation to the equity.
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒−𝑃𝑟𝑒𝑓𝑓𝑒𝑟𝑒𝑑 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 19821−0 19821
Return on Equity (2020)= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝑒𝑞𝑢𝑖𝑡𝑦=(75315+106683)/2=90999 =0.217=21.78%

Return on Equity (2021)

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒−𝑃𝑟𝑒𝑓𝑓𝑒𝑟𝑒𝑑 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 21869−0 21869
=𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝑒𝑞𝑢𝑖𝑡𝑦=(106683+143086)/2=124884.5=0.175=17.51%
 Return on Equity

22.5
20
17.5
15
12.5
10
7.5
5
2.5
2020 2021
Year

As can be seen from the calculations in 2020 Alibaba’s Return on Equity is 21.78% and in 2021
Return on Equity becomes 17.51%. So, it’s decreased in 2021. Declining Return on Equity suggests
the company is becoming less efficient at creating profits and increasing shareholder value.
Return on Assets:
The return on assets shows the percentage of how profitable a company's assets are in generating
revenue.
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 19821 21869
Return on Assets (2020) = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠=(147656.628+185429)/2=166542.814=0.1313=13.13%

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 21869 21869

Return on Assets (2021) = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠=(185429+257978)/2=221703.5=0.098=9.864%

RETURN ON ASSTES

15

10
13.13
9.864
5

0
2020 2021
As can be seen from the calculations in 2020 Alibaba’s Return on Assets is 13.13%and in 2021 Return
on Assets becomes 9.864%. So, it is decreased in 2021. a declining ROA suggests a company has
made bad investments, is spending too much money, and may be headed for trouble.
Profit Margin:
Profit margin gauges the degree to which a company or a business activity makes money, essentially
by dividing income by revenues.
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 19821
Profit Margin (2020) = = 71985 = 0.2753 =27.53%
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 21869

Profit Margin (2021) = = 109480 = 0.1997 =19.97%
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

Profit Margin

30

25

20

15

10

0
2020 2021
YEAR

As can be seen from the calculations in 2020 Alibaba’s Profit Margin is 27.53%and in 2021 Profit
Margin becomes 19.97%. So, it is decreased in 2021. A declining profit margin means that the firm is
making less money per dollar of sales. This can be the result of a lower sales price or higher cost, or
both.

Debt to Assets Ratio:

The debt to asset ratio is a leverage ratio that measures the amount of total assets that are financed by
creditors instead of investors.
𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 61198
Debt to Assets Ratio (2020) = = 185429= 0.33 =33.00%
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
 𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 92583
Debt to Assets Ratio (2021) = = 257978= 0.3588 =35.88%
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

Debt to Assets Ratio

40
38.5
37
35.5
34
32.5 35.88
31 33
29.5
28
26.5
25
2020 2021
Year

As can be seen from the calculations in 2020 Alibaba’s Debt to Assets Ratio is 33.00% and in 2021
Debt to Assets Ratio becomes 35.88%. So, it is increased in 2021. Companies with a higher ratio are
more leveraged and, hence, riskier to invest in and provide loans to. If the ratio steadily increases, it
could indicate a default at some point in the future.
Efficiency Ratio:
Alibaba does not maintain any inventory of their own. So, for that reason their efficiency ratio cannot
be calculated.

Indicative Future of Alibaba Group

The primary most important disclaimer in the projection of the indicative future of any company is
that the past performance of the company is never suggestive of the future outcomes, performances or
prices. However, all the data retrieved from the past helps analysts have a hunch and make potential
predictions for the future.
Given how the world has recently been struck with a pandemic, Covid-19, a remarkable shift to e-
commerce has been noticed all over the world. Covid-19 has surely destroyed hundreds of businesses,
but when it comes to shopping, people are resorting to online shopping far more than ever before,
which only goes to show that Alibaba being one of the leading e-commerce companies has a good
future ahead of them.
As per Ken Shrieve’s article published on “Investor’s Business Daily”, Alibaba Group’s growth is
expected to step up in the current fiscal year 2022-2023 by a staggering 10% to $8.59 per share as
opposed to $7.70/share in the fiscal year 2021-2022. According to financial analysts, Alibaba Group
has always had a stunning growth rate where the company has a 5-year annualized growth rate of
25%. According to a report published by The Wall Street Journal, the total online transactions in
Alibaba.com last year (2021) summed up to $248 billion which outperformed eBay and Amazon.com
combined.
In the fiscal year 2021, as a result of the significant migration to online shopping, Alibaba’s gross
merchandise volume increased by 14% relative to the previous year, standing at a total of $84.5
billion.
As of now, Alibaba operates its e-commerce operations through 3 major platforms based in China -
Taobao, Tmall and Alibaba.com. However, Alibaba Group is set to acquire more e-commerce
platforms in the future. For instance, they just expanded their operations by acquiring Daraz, the
largest e-commerce platform in Bangladesh, a few months ago.
For the customers who have adapted to the convenience of shopping online staying home, there is no
going back. These customers may go to physical shops for purchase, but they will always resort to e-
commerce shopping from time to time. By and large, this only means that the future of e-commerce
itself is in safe hands and upright.

References:
https://www.alibabagroup.com/en/about/history
bloomberg.com/quicktake/alibaba
https://doc.irasia.com/listco/hk/alibabagroup/annual/2020/ar2020.pdf
https://doc.irasia.com/listco/hk/alibabagroup/annual/2021/ar2021.pdf
https://www.investors.com/research/alibaba-stock-buy-now/
https://graphics.wsj.com/alibaba/