Corporate Overview of Alibaba Inc.
Alibaba Inc. was founded in 1999 by 18, and Jack Ma leads it. The company comprised of cloud computing, core commerce, innovation initiatives, digital media, and entertainment. Alibaba Inc. operates leading online and mobile marketplaces in wholesale and retail trade as well as the provision of other services including cloud computing. It provides technology which enables customers to conduct business effectively in the ecosystem.
To make it easy to do business anywhere across the globe
It aims to build a comprehensive commerce infrastructure. It envisions that the client will work, meet and live at Alibaba that it will be a company that aims to last more than 102 years.
Alibaba Groups’ Major Businesses include:
Taobao Marketplace: It is one of the largest China’s Online Shopping destination which was launched in 2003. It allows the customer to make a selection of a variety of products with a lot of conveniences. According to iResearch Taobao Marketplace is the largest online shopping destination with a lot of merchandise volume. It was ranked as N0. 1 e-commerce app in 2014.
It was launched in 2008 April dedicated to the provision of the premium shopping experience. Tmall.com is the largest third-party platform for retailers and brands. Consumers can search for top-quality branded merchandise. It was ranked third by iResearch in 2014.
It is the most popular online group buying the market place in China which was launched in 2010, and it has active users according to iResearch. The platform offers quality products at discounted prices by analyzing the demand for the products offered to the consumers. It provides the product at flash sales hence makes the product available to customers at any time they want.
It is one of the popular global consumer marketplaces which was launched in 2010. AliExpress is a global retail market place which targets consumers across the globe. It has many branches in the United States, Brazil, and Russia.
Analysis of the firm’s industry and economy.
The political implications can either influence the growth of business or chances of survival. Political risk depends on the existing political regime and the extent to which it affects business operation. For instance in a case where there is political goodwill then the business operation of Alibaba will blossom while cases of political unrest can create an unconducive environment where the business operation cannot be conducted effectively (Arshad, Zain, Arshad, & Kamil, 2017). Political stability is critical for effective business operation and government regulation regarding business to be undertaken in the company. Law enforcement on rules and regulation can affect operations of the market.
The prevailing economic system determines to the extent of the Alibaba operational growth. The interest rate charged on products and services will enhance the outcome of the business operation of Alibaba. Excessive interest rate deters operation and expansion while low interest makes the cost of capital to be cheap for the company to acquire and expand the business operation. The prevailing inflation rate will affect the general value of income generated in the company (Arshad, Zain, Arshad, & Kamil, 2017). Financial market affects business operation since the exchange rate in the market determines the profits which the firm can earn.
iii. Technological factors:
Availability of technology will influence the performance of the company. The efficiency of business operations depends on the technology available and how effective the firm can tap and use it for the betterment of the business operation.
The cultural factors in which the business operates impact on how business operates in the economy. Demographic representation determines the purchasing pattern of the people in the society. Target group in the population are very critical in ensuring that business is operating effectively. The class of distribution in the social group determines the taste and preference of consumers in the market.
Financial analysis of Alibaba Inc.
Analysis of Income statement
The analysis of the income statement of Alibaba Group as indicated in fig.1 shows that the revenue earned from business operation for the past four years has been increasing. The information portrays that business is operating well. The gross profit earned in business operation for the past four years has risen from $8,447,000 to $22,764,000 which portrays a significant growth in business operation. The operating income from business indicates that it had been increased from $3732000 in 2015 to $11017000 in 2018. Net income from the business operation has also risen from $3895000 in 2015 to $10,170,000 in 2018. The information portrays that business operations are on the right trajectory for growth.
The statement of cash flow for the past four years which portray business performance in the economy.
The analysis of the net cash flow form business performance indicates that they have fallen from $12,121,000 in 2015 to $8,833,000. The decline in cash flow points to the decrease in business operation which might be caused by external factors in the economy. It shows that the company needs to strategize on the mechanism of increasing the value of the business in the marketplace. The factors which have contributed to a decline in the net income cash flow are attributed to the increase in the value of depreciation on the assets in the organization.
The analysis of the financial ratio of Alibaba
The analysis of the ratio of business operation provides an overview of the business operation. Under liquidity ratio the current ratios, quick ratio and cash ratio as indicated in the diagram which denote the ability of the firm to pay short-term obligations as they fall due in the company. In the year 2015, the company’s current ratio was higher than in 2018. Indicates that the company was more efficient in business in 2015 than as indicated in the year 2018 (Laitinen, & Laitinen, 2018). If the ratio is more than 100% indicates that the company can meet short obligation without undergoing liquidation to complete payment to the creditors.
The trend in the current, quick and cash ratio indicates a decline. It shows that the firm’s capability to repay a short-term obligation is also declining with time. The company needs to plan on how it can change this situation before it gets worse.
Profitability analysis of Alibaba Company provides a clear overview of how it earns profit from business proceeds fluctuates over time. Gross margin percentage in 2015 was 69% while in 2018 it was 57%. The trend in the level of profitability ratio of the company is declining from the analysis of the financial statement (Laitinen, & Laitinen, 2018). Return on equity for the business operation increased from 17% to 18%. It indicates that the amount which shareholders can receive in business are quite effective. The trend in the Return on Equity is increasing from 2015 to 2018.
Profitability ratio points out that business is productive; hence a lot of income which can be earned from business operations. The firm needs to engage in activities which ensures better performance of the economy.
The analysis the stock price on the stock exchange market indicates that company’s stock value (BABA) is declining; hence there is a need for the company to come up with immediate strategies to remedy situations. It declining at -2.89% and the current value of the stock is BABA $176.26%. Based on this analysis projected stock price for next year will be ($176.26% *-2.89%) = $171.17.
The appropriate price of a stock is indicated as $176.26. It is the price at which the stocks are sold on the stock exchange market. It provides essential information which sellers can analyze on the stock exchange to get a clear view of the trend in stock exchange on the market.
Free Cash flow to Equity (FCFE)
It is obtained through the application of the specific formula, for instance, FCFE => Cash from operations less Capital Expenditures plus Net Debt issued. The method can be used to evaluate the value of the stock in the economy. The price of the stock can be evaluated using this approach since it convenient and easy to apply (Farooqi, Haq, & O’Brien, 2015). It does not require any complication so long as cash from operating activities is available, capital expenditures are also available.
The firm can decide which appropriate mechanism can be used in the determination of the price of the stock. The stock price of the firm is evaluated through the FCFE approach depending on a number of activities performed in the organization (Silva, & Pereira, J2017). The method will analyze activities which are undertaken by Alibaba Inc. to determine the appropriate price.
Arshad, A. S., Zain, Z. M., Arshad, A. A., & Kamil, N. M. (2017). Factors Affecting Business Success of Small and Medium Enterprises in Malaysia. Asean Entrepreneurship Journal, 3(1), 56-63.
Farooqi, M., Haq, S., & O’Brien, J. R. (2015). Measuring Free Cash Flows to Equity for Financial Institutions: An Application to Qatar Islamic and Conventional Banks.
Laitinen, E. K., & Laitinen, T. (2018). Financial reporting: profitability ratios in the different stages of life cycle. Archives of Business Research, 6(11).
Silva, J. M., & Pereira, J. A. (2017). Adjustments to cash build-up when retaining dividends in the FCFE valuation. Journal of Advanced Management Science, (5), 327-332.