Leverage ratios are used in determining the amount of debt loan the business has taken on the assets or

equity of the business. A high ratio indicates that the company has taken on a larger amount of debt
than its capacity and will not be able to service the obligations with the ongoing cash flows. It includes
an analysis of debt to equity, debt to capital, debt to assets, and debt to EBITDA.

1. Debt-to-Equity Ratio to get an idea about the company’s capital structure.

Debt Equity Ratio Formula = Total Debt / Total Equity

= Long term debt/Share holder’s equity

Long Term Debt

40 35.51
35
30 27.8
25 20.78
20 16.11 16.54 18.49
15 13.18
10.04 8.74 8.1
10
5
0
2012-03 2013-03 2014-03 2015-03 2016-03 2017-03 2018-03 2019-03 2020-03 2021-03 Latest
Qtr

Share Holder's Equity

80 71.05
70 65.38 63.06 60.38
59.74 60.02 56.58 58 59.95
60
50
40 35.87
30
20 16.48
10
0
2012-03 2013-03 2014-03 2015-03 2016-03 2017-03 2018-03 2019-03 2020-03 2021-03 Latest
Qtr

Debt-to-Equity Ratio
1.2 1.05
1
0.8
0.6
0.35 0.28 0.33
0.4 0.25 0.23 0.18 0.17 0.14
0.2
0
2012-03 2013-03 2014-03 2015-03 2016-03 2017-03 2018-03 2019-03 2020-03 2021-03 Latest
Qtr
From this leverage ratio we can see Alibaba is a very healthy firm. In 5 years from 2014 to 2019 debt
equity ratio had decreased about 5x. And in the past 3 years the firm is quite stable.

2. Debt Capital Ratio: This leverage ratio calculation is the extension of the previous ratio. Instead of
comparing debt and equity, this ratio would help us see capital structure holistically.

Debt Capital Ratio Formula = Total Debt / (Total Equity + Total Debt)

0.50896646
Debt to Capital Ratio
0.6 1327858
0.5
0.4 0.26555200 0.25552631
0.24758681
39341040.210291092084744 57894740.21441148
0.3 7958691 58458620.14239086
0.13730532
0.12532827
0.2 0873113 9332762 5459586
0.1
0
2012-03 2013-03 2014-03 2015-03 2016-03 2017-03 2018-03 2019-03 2020-03 2021-03 Latest
Qtr

In the past 3 years the debt is average 16% of the total capital of Alibaba, from the figure, it is high
equity and low debt company.

3. Debt-Assets Ratio: This leverage ratio talks about if assets are more than debt (in the ratio), that
means it is rightly leveraged. But if the assets are less than debt, the firm needs to look at utilizing its
capital.

Debt-Assets Ratio Formula = Total Debt / Total Assets

Debt to Asset Ratio

0.50 0.44
0.37
0.40
0.30 0.22
0.17 0.20 0.19
0.20 0.16
0.10 0.10 0.09
0.10 0.03
0.00
2012-03 2013-03 2014-03 2015-03 2016-03 2017-03 2018-03 2019-03 2020-03 2021-03 Latest
Qtr

Alibaba always has more asset that loan in their whole history, which are quite a good signal.

4. Debt EBITDA ratio: This leverage ratio is the ultimate ratio that determines how much impact debt
has on a company’s earnings.

Debt EBITDA Ratio Formula = Total Debt / EBITDA

 Debt to EBITDA Ratio
0.14
0.11
0.12
0.10
0.08
0.06 0.05 0.04
0.04
0.02
0.00
2019-03 2020-03 2021-03

In the last 3 years , Alibaba’s debt is a lot lower than the earnings which is very good thing for the firm.

Leverage ratios will help to see how a company has structured its capital. To take advantage of
leverage, it is important to structure the capital with a portion of the debt. That is because it helps
reduce the cost of capital (by lowering the cost of equity. Additionally, it helps pay less tax since the
taxes are calculated after paying the interests (i.e., the cost of debt).

In Alibaba’s leverage ratio analysis result, the company does not have huge debt at all, but investor may
need to look at other elements as well since low debt it may pay off too much in the cost of capital and
reduce its earnings in the long run.