FINANCIAL

REPORT

1
Table of Contents

Brief Introduction................................................................................................................ 3
1. Sources and Uses of Cash........................................................................................ 4
2. Standardized Financial Statements.................................................................... 6
a. Standardized Balance Sheet......................................................................................................................7

b. Standardized Income Statements...........................................................................................................7

3. Ratio Analysis................................................................................................................ 7
a. Long-term solvency, or financial average, ratios............................................................................9

b. Asset management, or turnover, ratios..............................................................................................10

c. Profitability ratios..........................................................................................................................................11

d. Market value ratios......................................................................................................................................12

4. The DuPont Identity................................................................................................... 13

Appendix............................................................................................................................... 15

2
Brief Introduction

Alibaba is China’s — and by some measures, the world’s — biggest online commerce company.
Its three main sites — Taobao, Tmall and Alibaba.com — have hundreds of millions of users,
and host millions of merchants and businesses. Alibaba handles more business than any other e-
commerce company.

This report aims to analyze the business performance of Alibaba in the fiscal year from 2018 to
2020 by using various methods such as peer group and time trend analysis along with several
financial indicators such as the current ratio, quick ratio. The study is mainly based on Alibaba’s
annual report for 2019 and 2020, focusing on the company's balance sheet and income
statements. All other added information outside of Alibaba’s financial reports is cited at the end
of the page where they are footnoted.

Please keep in mind that the financial statements used in this report have been adjusted to
calculate and analyze more accurately. The modification is minor and only to fix unwanted typos
and rounding of numbers.

https://graphics.wsj.com/alibaba/

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 1. Sources and Uses of Cash
In 2019, Alibaba received a total cash source of cash of $250,852 million and used up $277,254
million, resulting in a negative net addition of cash of $26,402 million at the end of the year.

Sources of cash (2019)

$120,000.00

$100,000.00

$80,000.00

$60,000.00

$40,000.00

$20,000.00

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Increases in common equity and accrued interest are the most commonly attributed to monetary
sources. There were some minor asset declines, which accounted for around 10.2 percent of the
total cash stream. Alibaba focuses on liabilities and equity, the sum of which exceeds the sum of
assets by more than 80%. Cash Flows in 2019.

4
$160,000.00 Uses of cash (2019)
$140,000.00

$120,000.00

$100,000.00

$80,000.00

$60,000.00

$40,000.00

$20,000.00

$-

Alibaba spent the majority of their cash on intangibles, investments, and advances. Other
applications included investing in Net Property, Plant & Equipment ($152,702) and Long-Term
Note Receivable ($18,461 million). Because there is only one variation of that in Decrease in
liabilities and equity, the majority of cash uses came from the increase in assets.

5
In 2020, Alibaba had a total cash source of $370,291 million and used $309,173 million of it,
resulting in a net cash addition of $61,118 million at the end of the year.

The company spent the most money on Common Equity ($250,442 million) and other Current
Liabilities ($31,313). Some modest adjustments were made, but the volatility in Other Liabilities
is very tiny, at only $16.

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Cash & Short-Term Investments account for more than 70% of overall use. Total Investments
and Advances are followed by $59,957 and $26,089 in net property, plant, and equipment,
respectively. Because of the Intangible Asset figure, their position has shifted from Usage to
Cash Sources.

Overall, Alibaba had seen some significant fluctuations in both cash uses and cash sources.
There was a rather considerable increase in total sources and total uses of cash over the two years
2019 and 2020, with total sources increasing by 68 percent and total uses increasing by 87
percent.

2. Standardized Financial Statements

We can standardize Alibaba's financial sheet and income statement from 2018 to 2020 using
standardized methodologies. The common-size method was used to examine the company's
financial performance in this report. The specific statements are included in the report's appendix
section.

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 a. Standardized Balance Sheet
The fraction of current assets in the entire asset distribution was reasonably steady. The rate
increased from 35.58 percent to 27.80 percent in 2019 before reverting to 35.10 percent in 2020.
Furthermore, throughout the last three years, Alibaba has kept the percentage of its Net Property,
Plant, and Equipment at or above 10%.

During the period, the ratio of equity remained stable at around 53 percent, with liabilities around
47 percent. The proportion of current liabilities increased from 18.93 percent in 2018 to 21.52
percent in 2019 before falling down to 18.42 percent in 2020. These others, on the other hand,
experienced some gently fluctuating from the beginning to the end of the period.

b.Standardized Income Statements

To begin with, the proportion of depreciation was very consistent throughout the year, hovering
about 94 percent of sales. The same can be said for COGS, which remained at around 57 percent
of revenue. However, the income tax rate fell from 7.27 percent in 2018 to 4.03 percent in 2020.
Only the figures for depreciation remain constant at around 4%.

Because of the increase in operational expenses, Alibaba's Pretax Income will account for 32.69
percent of total sales by the end of 2020. The interest expense was 1.38 percent, the same as in
2019, and was expected to fall to around 1% at the conclusion of the quarter. Finally, a net
income of 29.28 percent was reported, which is a very high proportion of revenue.was reported a
29.28% which is very high of revenue proportionally.

3. Ratio Analysis
Alibaba's SIC CODE is 7389. All the financial ratios given were discovered and computed using
industry average data2.

2
https://www.readyratios.com/sec/industry/7389/

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 a. Short-term solvency, or liquidity, ratios
I. Short-term solvency, or liquidity, ratios

2020 2019 2018

Current ratio 1.91 1.29 1.88
Quick ratio 1.81 1.22 1.80
Cash ratio 1.42 0.92 1.47
Net working capital to total assets 0.17 0.06 0.17
Interval measure 395.61 308.89 548.89

The current ratio index is a liquidity ratio that assesses a company's ability to cover short-term
debt with current assets. Alibaba had a current ratio greater than one after three years, indicating
healthy finance because the company did not have to finance its activities with current assets.
The index also showed an upward trend, indicating that Alibaba's finance was becoming more
secure.

Liquidity ratio

2018

2019

2020

0.00 0.50 1.00 1.50 2.00 2.50

Cash ratio Quick ratio Current ratio

We also have the quick ratio to measure a firm's liquidity, which indicates a firm's ability to pay its
current assets without having to sell its inventory. Inventory is frequently illiquid and can lose value
over time; thus, the current ratio may not accurately measure liquidity. Alibaba reported an increase
in the quick ratio, indicating that the company's financial health is improving. However, the figures
for 2018 are lower than in previous years, implying that the company may be unable to cover its
short-term debt, which must be carefully considered .

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Following that, Alibaba's cash ratio was initially reported to be 1.47 in the first year. The index
fell to 0.92 in 2019 due to the previously reported negative net cash addition before rising to 1.42
in 2020. The cash ratio is also significantly lower than the company's average.
The last two liquidity ratios are the networking capital to total assets and the interval measure,
both of which have shown a positive trend over the last three years. In 2020, Alibaba had an
interval measure of approximately 400 days, implying that the company can continue to operate
for more than 13 months if only its current assets are used.

Overall, Alibaba has demonstrated consistency in strengthening its liquidity over the last three
years. To remain competitive, the company can continue its strategy and increase its short-term
solvency while raising its ratios.

b. Long-term solvency, or financial average, ratios

II. Long-term solvency, or financial leverage, ratios

2020 2019 2018

Total debt ratio 0.33 0.36 0.39
Debt-equity ratio 0.34 0.38 0.45
Equity multiplier 8.91 7.01 6.43
Long-term debt ratio 0.95 0.83 0.95
Times interest earned ratio 18.44 11.55 19.80
Cash coverage ratio 22.37 14.40 22.23

Alibaba's total debt ratio has remained stable at around 0.36 over the last three years, implying
that for every 1 dollar in assets, the company owes 0.36 dollars in debt. In general, investors
prefer companies with debt ratios between 0.3 and 0.6. With this index hovering around 0.36,
Alibaba may be able to weather the financial storm almost perfectly.

The debt-equity ratio and the equity multiplier are two ratios that can be calculated using the
total debt ratio and the other. As a result, these two ratios tell the same story: Alibaba was a
company with a high liability to assets ratio. When compared to the industry average in 2020,
Alibaba's ratios were significantly higher, indicating a competitive disadvantage.

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In 2020, the ratio was significantly higher than the industry average; however, it has been
decreasing over the last three years. When compared to other companies in the same industry,
Alibaba has a fairly well-covered debt, but they must pay close attention to the consecutive drop
over the years.

We also noticed the company's consistent long-term debt ratio, which remained around 0.95
percent, and its decreasing cash coverage ratio; the latter showed a significant drop from 22.23 to
14.4 in 2019 before becoming relatively stable at 22.37 in 2020.

c. Asset management, or turnover, ratios

III. Assets management, or turnover, ratios
2020 2019 2018
Inventory turnover 17.27 20.85 19.05
Days' sales in inventory 21.13 17.51 19.16
Receivables turnover 11.16 9.85 8.23
NWC turnover 18.97 -4.63 -10.52
Fixes asset turnover 0.61 0.54 0.51
Total asset turnover 0.40 0.39 0.33

The turnover ratios are used to calculate the firm's efficiency in using its assets to generate sales.
Alibaba's inventory turnover ratio peaked in 2019 at 20.85 before falling to 17.27 in 2020. In
2020, the industry ratio was 21.13, slightly higher than the company.

The receivables turnover also tells a different story: in 2020, an average company can collect its
outstanding credit accounts and re-loan the money 15.52 times, whereas Alibaba can do the same
about 11 times.

Furthermore, the asset turnover ratio was included in the table. NWC turnover has increased
steadily over the last three years, with a projected increase to 18.97 in 2020. Similarly, fixed
asset turnover was 0.61, up from 0.54 the previous year. The total asset turnover ratio increased
from 2018 to 2020, indicating a potential gain over the industry average in 2020.

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 d. Profitability ratios

The three most essential and common profitability ratios are listed in the above table.

Profitability ratios
25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2020 2019 2018

Profit margin Return on assets (ROA) Return on quity (ROE)

Overall, Alibaba's profitability ratios increased from 2018 to 2020. The global pandemic, Covid-
19, in 2020, which affects the global economy, could be one reason for this slow rise.

Initially, the profit margin was reported to be 7.71 percent in 2018, then dropped to 5.69 percent
in subsequent years. The profit margin expresses directly what percentage of sales is made up of
net income. In other words, Alibaba made $5.69 in profit for every dollar of sales in 2020. A
company in the same industry would make only 2 cents profit on average, implying that Alibaba
had a significant advantage over its competitors.

Second, the return on assets ratio shows how much profit a business made per dollar of assets.
The trend of the ROA ratio is straight up, rising from 8.35 percent to 11.67 percent at the end of
the period. The increase can be explained by a significant change in total assets and an increase
in net income, which will rise from $74,741 million to $167,469 million in 2020. (more than a
twice). Alibaba's ROA was higher than the industry average, indicating that the company could
still generate profits in 2020.

The return on equity is a measure of a company's profitability utilizing its equity. ROE, like the
other two ratios stated above, reached a peak of 20,29 percent in 2020. In the last segment, we

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will go through it in depth.

e. Market value ratios

Alibaba reported two types of shares: ordinary shares and preferred shares, with the weighted
number of shares outstanding remaining constant over three years at 295,089,818 and
206,205,445, respectively.

The market price of each type of share was discovered through research 3. Furthermore, the
book price per share was calculated and is shown in the table below:

The earnings per share (EPS) for each share was also reported in Alibaba's annual report:
EPS Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Ordinary share 7.97 4.96 3.61
Preferred share 7.84 4.88 3.61

Using the information provided above, we can calculate Alibaba's price-earning, market-to-
book, and Enterprise value-EBITDA ratios for the period 2018-2020:

3
https://www.statista.com/statistics/466109/annual-closing-share-prices-of-Alibaba/

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 V. Market value ratios   2020 2019 2018

Price-earning ratio
Ordinary share 17.45 34.93 47.12
Preferred share 17.72 36.11 42.22
Market-to-book ratio
Ordinary share 0.8447 1.0521 1.0329
Preferred share 0.8436 1.0702 0.9256

Enterprise value-EBITDA ratio 2.0570 1.9270 1.7860

The PE ratio reflects how much investors are ready to pay for one euro of current profits. As a
result, a considerable increase in PE by the end of 2020 demonstrated that investors had a high
belief in the company's prospective profitability.

A glance at Alibaba's market-to-book ratio, on the other hand, may convey a different story: The
market-to-book ratio fell in 2020 and was constantly less than one over the time. A market-to-
book ratio less than one indicates that the firm has not been effective in producing value for its
shareholders. Alibaba will need to pay special attention to this in order to conduct future
financial transactions.

Throughout the year, the Enterprise value-EBITDA ratio increased.

4. The DuPont Identity

Industr
Dupont ALIBABA Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
y
PM 5.69% 6.51% 7.71% 2.30%
TATO 0.40 0.39 0.33 0.57
EM 8.91 7.01 6.43 1.6
ROE=PM*TATO*EM 20.22% 17.82% 16.33% 2.10%

The DuPont identity depicts the three components on which ROE is dependent: profit margin,
total asset turnover, and equity multiplier. Between 2018 and 2020, Alibaba kept its profit
margin ratio and equity multiplier higher than the industry average. However, by 2020, total
asset turnover will be lower than the industry average. Although all three ratios increased, the fall
in profit margin was the most important element in the modest improvement in ROE (which
decreased from 7.71 percent to 5.69 percent).
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Finally, by the end of 2020, ROE was reported at 20.22 percent, which is slightly more than half
of the previous year. As a result, we may expand on the DuPont study to further analyze the
problem. The Appendix also contains the full enlarged DuPont analysis.

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16
 APPENDIX
Sources and Uses of Cash of Alibaba in 2020 and 2019

SOURCES AND USES OF CASH SOURCES AND USES OF CASH

2020 2019

Listed in mil. Listed in mil.

Sources of Cash Sources of Cash
Decrease in Assets Decrease in Assets
Intangible Assets $ 20,179.00 Cash & Short Term Investments $ 336.00
Other Assets $ 7,227.00 Long-Term Note Receivable $ 817.00
Increase in liabilities and equity Other Assets $ 817.00
Income Tax Payable $ 1,404.00 Increase in liabilities and equity
Other Current Liabilities $ 31,313.00 ST Debt & Current Portion LT Debt $ 18,724.00
Total Current Liabilities $ 21,722.00 Income Tax Payable $ 3,582.00
Long-Term Debt $ 21,657.00 Other Current Liabilities $ 50,865.00
Deferred Taxes $ 16,331.00 Deferred Taxes $ 1,976.00
Other Liabilities $ 16.00 Other Liabilities $ 5,151.00
Common Equity (Total) $ 250,442.00 Common Equity (Total) $ 118,537.00
Total source $ 370,291.00 Accumulated Minority Interest $ 52,017.00
Increase in Assets Other Taxes $ 1,976.00
Cash & Short Term Investments $ 172,714.00 Total source $ 250,852.00
Total Accounts Receivable $ 6,551.00 Increase in Assets
Inventories $ 6,268.00 Total Accounts Receivable $ 8,877.00
Other Current Assets $ 4,750.00 Inventories $ 4,312.00
Net Property, Plant & Equipment $ 38,248.00 Other Current Assets $ 6,856.00
Total Investments and Advances $ 100,971.00 Net Property, Plant & Equipment $ 26,089.00
Long-Term Note Receivable $ 5,334.00 Total Investments and Advances $ 59,957.00
Decrease in liabilities and equity Intangible Assets $ 152,702.00
ST Debt & Current Portion LT Debt $ (17,589.00) Decrease in liabilities and equity
Accumulated Minority Interest $ (8,074.00) Long-Term Debt $ 18,461.00
Total use $ 309,173.00 Total use $ 277,254.00
Net addition to cash $ 61,118.00 Net addition to cash $ (26,402.00)

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APPENDIX
COMMON-BASE YEAR Balance sheet
COMMON-BASE YEAR Balance sheet COMMON-BASE YEAR Balance sheet
All values Percentages All values Percentages
ALIBABA ALIBABA
Years 31/122020 31/12/2019 31/12/2018 Years 31/122020 31/12/2019 31/12/2018
Assets Liabilities & Shareholders' Equity
Cash & Short Term Investments 28.59% 21.07% 29.34% ST Debt & Current Portion LT Debt 0.60% 2.33% 0.84%
Cash Only 26.10% 19.70% 27.82% Short Term Debt 0.60% 2.33% 0.84%
Short-Term Investments 2.49% 1.37% 1.52% Accounts Payable 0.46%
Total Accounts Receivable 3.57% 3.97% 4.00% Income Tax Payable 1.54% 1.83% 1.91%
Accounts Receivables, Net 1.76% 2.29% 1.46%
Other Current Liabilities 15.82% 17.36% 16.19%
Accrued Payroll 1.28% 1.45% 1.56%
Accounts Receivables, Gross 1.76% 2.29% 1.46% Miscellaneous Current Liabilities 14.54% 15.90% 14.62%
Other Receivables 1.82% 1.67% 2.55% Total Current Liabilities 18.42% 21.52% 18.93%
Inventories 1.13% 0.88% 0.63%
Long-Term Debt 10.61% 11.59% 16.66%
Finished Goods 1.13% 0.88% 0.00%
Long-Term Debt excl. Capitalized Leases 9.16% 11.59% 16.66%
Other Current Assets 1.81% 1.88% 1.60%
Non-Convertible Debt 9.16% 11.59% 16.66%
Prepaid Expenses 0.57% 0.73% 0.80%
Deferred Taxes 2.77% 2.07% 2.39%
Miscellaneous Current Assets 1.23% 1.15% 0.80%
Deferred Taxes - Credit 3.34% 2.33% 2.69%
Total Current Assets 35.10% 27.80% 35.58% Deferred Taxes - Debit 0.58% 0.26% 0.30%
Other Liabilities 0.62% 0.79% 0.42%
Net Property, Plant & Equipment 10.78% 10.33% 10.10%
Other Liabilities (excl. Deferred Income) 0.47% 0.64% 0.29%
Property, Plant & Equipment - Gross 14.74% 13.84% 12.95% Deferred Income 0.15% 0.15% 0.14%
Buildings 5.36% 6.42% 6.40% Total Liabilities 33.00% 36.23% 38.71%
Construction in Progress 1.09% 1.51% 1.54% Common Equity (Total) 57.53% 51.01% 51.02%
Computer Software and Equipment 5.13% 5.51% 4.72% Additional Paid-In Capital/Capital Surplus 26.18% 24.02% 26.04%
Other Property, Plant & Equipment 0.51% 0.40% 0.29% Retained Earnings 30.94% 26.72% 24.03%
Accumulated Depreciation 3.96% 5.04% 6.35%
Other Appropriated Reserves 0.46% 0.52% 0.56%
Treasury Stock -0.31%
Total Investments and Advances 26.73% 25.06% 24.88%
Total Shareholders' Equity 57.53% 51.01% 51.02%
LT Investment - Affiliate Companies 14.44% 8.75% 19.48%
Accumulated Minority Interest 9.46% 12.76% 10.26%
Other Long-Term Investments 12.29% 16.31% 5.40% Total Equity 67.00% 63.77% 61.29%
Long-Term Note Receivable 0.58% 0.27% 0.37%
Liabilities & Shareholders' Equity 100.00% 100.00% 100.00%
Intangible Assets 25.72% 34.53% 26.43%
Net Goodwill 21.08% 27.45% 22.61%
Net Other Intangibles 4.64% 7.07% 3.83%
Other Assets 1.08% 2.02% 2.64%
Deferred Charges 0.17% 0.90% 1.59%
Tangible Other Assets 0.91% 1.12% 1.05%
Total Assets 100% 100% 100%
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APPENDIX
Common-size Income statement of Alibaba

COMMON-SIZE INCOME STATEMENT

All values Percentages

ALIBABA
Years 31/122020 31/122019 31/12/2018
Sales/Revenue 100.00% 100.00% 100.00%
Cost of Goods Sold (COGS) incl. D&A 57.33% 57.00% 45.30%
COGS excluding D&A 49.05% 47.20% 36.55%
Depreciation & Amortization Expense 8.28% 9.80% 8.74%
Depreciation 3.99% 3.93% 3.46%
Amortization of Intangibles 4.30% 5.87% 5.29%
Gross Income 42.67% 43.00% 54.70%
SG&A Expense 23.93% 27.09% 26.49%
Research & Development 8.45% 9.93% 9.09%
Other SG&A 15.47% 17.16% 17.40%
EBIT 18.74% 15.90% 28.21%
Unusual Expense 0.81% 0.75% -0.03%
Non Operating Income/Expense 1.46% 0.06% 0.17%
Non-Operating Interest Income 14.31% 11.70% 12.91%
Interest Expense 1.02% 1.38% 1.42%
Pretax Income 32.69% 25.53% 39.90%
Income Tax 4.03% 4.39% 7.27%
Income Tax - Current Domestic 4.71% 4.98% 6.88%
Income Tax - Deferred Domestic -0.68% -0.58% 0.39%
Equity in Affiliates -1.12% 0.15% -8.31%
Consolidated Net Income 27.54% 21.29% 24.32%
Minority Interest Expense -1.75% -1.95% -1.03%
Net Income 29.28% 23.25% 25.34%
EPS 0.00% 0.00% 0.00%
EPS (Diluted) 0.00% 0.00% 0.00%

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APPENDIX
Ratio Analysis of
RATIO ANALYSIS ALIBABA Alibaba
31/12/2020 31/12/2019
V. Market value ratios 31/12/2018
I. Short-term solvency, or liquidity, ratios Price-earning ratio
Current ratio Ordinary
1.91 share 1.29 1.88 17.45 34.93 47.12
Quick ratio Preferred
1.81 share 1.22 1.80 17.72 36.11 42.22
Cash ratio Market-to-book
1.42 ratio 0.92 1.47
Net working capital to total assets 0.17 share
Ordinary 0.06 0.17 0.8447 1.0521 1.0329
Interval measure 395.61 308.89 548.89
Preferred share 0.8436 1.0702 0.9256
II. Long-term solvency, or financial leverage, ratios
Total debt ratio Enterprise0.33
value-EBITDA ratio
0.36 0.39 2.0570 1.9270 1.7860
Debt-equity ratio 0.34 0.38 0.45
Equity multiplier Ordinary
8.91 share 7.01 6.43 139.10 173.25 170.10
Long-term debt ratio 0.95 share
Preferred 0.83 0.95 138.92 176.24 152.42
Times interest earned ratio 18.44per share 11.55
Book price 19.80 164.68 114.72 91.07
Cash coverage ratio 22.37 14.40 22.23

III. Assets management, or turnover, ratios Weighted number of shares outstanding Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Inventory turnover Ordinary
17.27 share 20.85 295,089,818
19.05 295,089,818 295,089,818
Days' sales in inventory Preferred
21.13 share 17.51 206,205,445
19.16 206,205,445 206,205,445
Receivables turnover Total
11.16share 9.85 501,295,263
8.23 501,295,263 501,295,263
NWC turnover EPS 18.97 -4.63 -10.52
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Fixes asset turnover 0.61 0.54 0.51
Ordinary share 7.97 4.96 3.61
Total asset turnover 0.40 0.39 0.33
Preferred share 7.84 4.88 3.61
IV. Profitability ratios
Profit margin 5.69% 6.51% 7.71% APPENDIX
Return on assets (ROA) 11.67% 9.08% 8.35%
Return on quity (ROE) 20.29% 17.80% 16.37%

18
 alysis

Dupont ALIBABA Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Industry
C PM 5.69% 6.51% 7.71% 2.30%
o
TATO 0.40 0.39 0.33 0.57
m
p EM 8.91 7.01 6.43 1.6
l ROE=PM*TATO*EM 20.22% 17.82% 16.33% 2.10%
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