Alibaba Group Holdings Limited

Cash Flow Statement Analysis :-

Alibaba Group Holding Limited (the "Company") is a limited liability company
which was incorporated in the Cayman Islands on June 28, 1999. The Company is a holding
company and conducts its businesses primarily through its subsidiaries.
The business revenues are growing at CAGR of 35.25% of which the core e-
commerce business is growing at CAGR of 32.24% since three years whereas other (services
& innovation) business is growing at CAGR 60% (Exhibit 1). The major cash flow for the
organization has been generated via operation activities which is growing at rate of 30% since
three years (Exhibit 2). In 2017 & 2018 organization has resorted to debt financing and issued
equity to finance acquisitions while in 2016, cash flow generated through operating activities
has been sufficient for investing and financing activities. The group has spent on an average
98% (approx.) of investments on mergers and acquisition of business units to expand and
diversify business (Exhibit 4). The quality of profit (CFOA:PAT) has been degrading due to
increased expenditure on product development as depicted in exhibit 3 & 5. The company’s
working capital has been on a consistent increase in terms of receivables and inventories, also
to note is that company’s investments are higher than depreciation/amortization incurred by
them. This shows company’s interest in renewing the capacity to sustain business for longer
period of time. The company has also been able to fulfil the fixed obligations associated with
its operations related to interest on loans and merchant deposits which has been concluded
from an uptrend in coverage ratio(2017: 7 and 2018: 10).
An overall outlook is positive on Alibaba Group Holdings Limited with
consistently increasing operating income and investing income. The Mergers & Acquisition
undertaken by them have shown positive results and highlights aggressive expansion
ideology. The diversification of business into media and entertainment would provide a
support to the e-commerce arm in degrading environment while adding value to the business
portfolio in terms of margin and revenue expansions.

Recommendation to Improve Cash Flow Reporting :-

1. Use Direct Method instead of Indirect Method of reporting Operating Cash Flow
2. Classify the adjustments in four buckets instead of two in Operation Cash Flow –
a. Operating cash inflows not recognized as revenue
b. Operating cash outflow not recognized as expense
c. Revenues without any current cash inflows
d. Expenses without any current cash outflows
3. Use currency as USD ($) instead of RMB for all reporting purpose as company is
listed on NYSE and USD has easy to understand value and require no conversion.
a. Also conversion rates vary on daily basis so it is confusing which one must be
considered.
4. Words such as “Escrow” and “Impairment” can be replaced with simple words such
as 3rd party transaction recorder or Loss on Goodwill.
Exhibit 1 :-

Year wise Revenue (in million RMB)

300,000

250,000

200,000

150,000 Total Revenue

Total Core Commerce Revenue
100,000

50,000

-
2016 2017 2018

Exhibit 2 :-

Cash Flow Streams (in million RMB)

2018

2017

2016

-100000 -50000 0 50000 100000 150000

CF - Financing Activities CF - Investing Activities CF - Operating Activities

Exhibit 3 :-

PAT vs CFOA (in million RMB)

140000

120000

100000

80000

60000

40000

20000

0
2016 2017 2018

CF - Operating Activities PAT

Exhibit 4 :-

CFIA vs M&A (in million RMB)

100000

90000

80000

70000

60000

50000

40000

30000

20000

10000

0
2016 2017 2018

CFIA M&A of Assets/Companies

Exhibit 5 :-

PAT vs Product Development Expense vs Total Revenue

(in million RMB)
300000

250000

200000

150000

100000

50000

0
2016 2017 2018

PAT Product Development Expense Total Revenue

 Amazon Inc.
Cash Flow Statement Analysis:-
Business revenues are growing at a CAGR of 18.25% (Exhibit 2). The major cash flow for
the organization has been generated via operation activities which is growing at rate of 15%
(Exhibit 1) since three years. Cash flow generated through operating activities has been
sufficient for investing and financing activities. It has spent 50% of its investments (Exhibit
4) on acquisitions which as per Note 4 in the annual report was to acquire technologies and
know-how to enable Amazon to serve customers more effectively. The quality of profit
(CFOA:PAT) has been degrading and company’s working capital has been on a consistent
increase in terms of receivables and inventories (Exhibit 3). Company’s investments are
higher than depreciation/amortization incurred by them only in the recent year. The company
has also been able to fulfil the fixed obligations associated with its operations related to
interest on long term debt and capital and financial lease obligations concluded from
coverage ratio of 3.15 in the current year. Happening to see the trend increasing in case of
PAT, net cash flow from operating activities and the capital expenditure.
Recommendation to Improve Cash Flow Reporting:-
1. Use Direct Method instead of Indirect Method of reporting Operating Cash Flow
2. Classify the adjustments in four buckets instead of two in Operation Cash Flow –
a. Operating cash inflows not recognized as revenue
b. Operating cash outflow not recognized as expense
c. Revenues without any current cash inflows
d. Expenses without any current cash outflows
Exhibit 1 :-

Cash Flow Streams (in million USD)

2017

2016

2015

$-40,000 $-30,000 $-20,000 $-10,000 $- $10,000 $20,000 $30,000

CF - Financing Activities CF - Investing Activities CF - Operating Activities

Exhibit 2 :-

Revenue Distribution (in million USD)

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$-
2015 2016 2017

Product Sales Service Sales

Exhibit 3 :-

CFOA vs PAT (in million USD)

$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$-
2015 2016 2017

CF - Operating Activities PAT

Exhibit 4 :-

Cash used for Acquisition (% of CFIA)

60

50

40

30

20

10

0
2015 2016 2017