You are required to examine in detail the latest available annual financial statements of a chosen company / Group of Companies to provide an in-depth analysis of its financial performance. This will normally be a company quoted on the Hong Kong, Shenzhen or Shanghai stock markets.



If you are in any doubt as to the validity of you chosen company please consult with the module tutor, preferably before the end of the taught phase of the study block.



The analysis should look at the liquidity, solvency, profitability and efficiency as evidenced in the company’s latest annual financial statements and relate these to the underlying operational performance.



You may wish to cover the following issues



1. Relevant general economic trends and details of the market in which the business operates

2. Performance compared with its competitors

3. Possible future performance, problems or issues as identified by your analysis



Good answers will draw information from throughout the financial statements as well as use press comment, analysts’ reports and share price information to provide a comprehensive critical analysis of the sustainability of the organisation’s financial performance.



I chose Alibaba Hong Kong Stock as the stock to be analysed. Already calculated all ratios, see attached Just google search its 2019 quarterly report and analyse based on the report. Another good website to look up all key information is aastocks.com.



Attached is what I started with, just based everything that you are going to write on what I started with.



Calculated ratios is attached, see word docs to continue with this post module assignment. Analyse calculated ratio is what he wants to see.

Writing your PMA: Advice for WMG’s Postgraduate Students

As a postgraduate level student in WMG you may have some concerns about your ability to write at the high standard required. This short guide is intended to provide general guidance and advice. It is important that if you have any questions you discuss them with your module tutor. Remember, in writing your PMA you need to meet the expectations of the reader and university.

A good PMA generally requires you to answer the question and to include…

1. A title, with your student number, module, lecturers name and any other documentation required by the university



2. A contents page and if appropriate, an abstract.



3. An introduction which acts as a ‘map’ to the rest of the document, describing the aim or purpose of the work and explaining how this aim is achieved. At this point it is usually helpful to paraphrase your conclusion.



4. Evidence of an appropriate level of background reading of relevant texts



5. Evidence of systematic and clear thinking, indicative of good planning and organisation



6. Writing which makes sense, is clearly and carefully presented (proof read and grammar checked)



7. A critical style of writing which compares and contrasts the main theories, concepts and arguments with conclusions that are based in evidence presented.



8. High levels of accurate academic referencing.



9. A logical and well-defined structure with headings and subheadings.



10. Clearly labelled and well-presented diagrams and other graphics that are discussed in the text



11. Adherence to usual academic standards including length and a timely submission



12. A reference section in which every source that is cited in the text is listed.

Where to get help:

1. Talk to your module tutor if you don’t understand the question or are unsure as to exactly what is required.



2. https://moodle.warwick.ac.uk/

Study skills and Research Methods Moodle site – we have a lot of resources on this website with workbooks, links and other helpful tools.

1. https://warwick.ac.uk/services/skills/academicwriting/

The university Academic Writing centre provides workshops and useful tools to help you in all aspects of your work.

1. https://moodle.warwick.ac.uk/course/view.php?id=32063§ion=1

Plagiarwise, the university’s site to help you to reference properly

1. https://warwick.ac.uk/services/wss   Wellbeing support services



2. https://warwick.ac.uk/services/library/students/your-library-online/ 

Numerous online courses provided by the University library to help in academic referencing, writing, avoiding plagiarism and a number of other useful resources.  

Post Module Assignment Submission form

                        MODULE TITLE:          Financial Analysis & Control Systems

                        MODULE CODE:         (01HK)

                        MODULE DATES:        9^th to 13^th March 2020 (Weekday Mode 1)

                        STUDENT ID NUMBER (name not required):

POST MODULE ASSIGNMENT

Answer either Question 1 or Question 2.

Marks are awarded on the basis of 70% for content, 30% for effort and presentation.

Word limit 2,500 words in total (excluding Appendices)

Question 1

Critically appraise the costing system, budgeting system or project appraisal system which is currently used by your organisation.  This could be at the strategic level, business unit or operating area as appropriate.

You are required to:-

a)             Analyse the chosen system

b)            Consider how it could be improved by adopting another methodology which you have covered in this module.  You are required to justify your chosen alternative method

Question 2

You are required to examine in detail the latest available annual financial statements of a chosen company / Group of Companies to provide an in-depth analysis of its financial performance. This will normally be a company quoted on the Hong Kong, Shenzhen or Shanghai stock markets.

If you are in any doubt as to the validity of you chosen company please consult with the module tutor, preferably before the end of the taught phase of the study block.

The analysis should look at the liquidity, solvency, profitability and efficiency as evidenced in the company’s latest annual financial statements and relate these to the underlying operational performance.

You may wish to cover the following issues

1. Relevant general economic trends and details of the market in which the business operates



2. Performance compared with its competitors



3. Possible future performance, problems or issues as identified by your analysis

Good answers will draw information from throughout the financial statements as well as use press comment, analysts’ reports and share price information to provide a comprehensive critical analysis of the sustainability of the organisation’s financial performance.  

You may not choose one of the companies covered in the In-module presentations. 

Learning outcomes assessed in this assessment are:

DEADLINE:

To be submitted electronically in ONE file (instead of separate files) in supported types (e.g. MS Word, Acrobat PDF, Postscript, Text, HTML, WordPerfect (WPD) and Rich Text Format, and maximum file size is 40MB) electronically using the appropriate web-form via Tabula BEFORE 12:00 noon UK time on Friday 24 April 2020.

If assessed work is submitted late, the following penalties will be incurred:

• Penalties for lateness may be applied at the rate of a 5 marks deduction per University working day after the due date, up to a maximum of 10 working days late. After this period the work may be counted as a non-submission.

[NB for students who started their course prior to 1 August 2019, a 3 marks deduction per University working day applies.]

Note - submission after the deadline time on the submission day will count as 1 day late

Complete your assignment from here (heading styles have been set up to assist you in this work) (Delete the instructions before you save and submit your work):

MODULE TITLE

Table of Contents

1          Heading 1 – Suggested that you use this for each Question answered.................. 5

1.1       Heading 2 – suggested that you use this for each sub-heading in each question answered         5

1.1.1    Heading 3 – you may use this heading as appropriate........................................... 5

Enter a page break here and between each question

1           Heading 1 – Suggested that you use this for each Question answered 

1.1         Heading 2 – suggested that you use this for each sub-heading in each question answered 

1.1.1        Heading 3 – you may use this heading as appropriate 

Published Accounts

Group presentation (assessed for 30% of the total mark)

Your task is to summarise briefly your company's group performance and present your conclusions to your fellow members of an ‘Investment Club’ some of whom have little or no previous financial expertise.

(As part of your research you will find consideration of some of the following questions appended should be beneficial.)

 You are strongly advised to:

 1) Consider the whole Company as a team.

 2) Allocate areas for each Team Member to investigate e.g. Profit-Liquidity  

 3) Consolidate findings & prepare Team presentation        

 Your report should include suitable ratios and any other appropriate evidence to substantiate your conclusions. 

Your presentation to Club Members should last no longer than ten minutes before   they are given the opportunity to question you.

In addition, you will be expected to ask questions of the other Club Members reports based on your experiences of own company analysis with particular emphasis on future strategy.

Assessment criteria

1. All members of the group will receive the same mark



2. Each team will give a 10 minute presentation, with five minutes for questions after that. These timings will be strictly observed.

Presentations will be assessed on the following basis

The following is a suggested approach, which will start to highlight issues with the financial statements

General review

Review the Income statement, balance sheet and cash flow statement

1. List five “good things” about the performance

1. Had a successful listing on the main board of the Hong Kong Stock Exchange

With top- line revenue growth of 38% year-over-year and adjusted EBITA growth

Of 37% year-over-year

1. Annual active consumers on China retail marketplaces reached 711 million, an increase  of 39 million over September 2019



2. Income from operations was RMB 39,560 million, an increase of 48% year-over-year.                  Adjusted EBITA, a non-GAAP measurement, increased 37% year-over-year to RMB 55,880 million ( US 8,027 million).



3. Adjusted EBITA for core commerce was RMB 58,075, an increase of 26% year-over-year. Our marketplace-based core commerce adjusted EBITA, a non-GAAP measurement, increased 22% year-over-year to RMB 66,371 million (US$9,534 million).



4. Net cash provided by operating activities was RMB 96,505 million and non-GAAP free cash flow was RMB 78,279 million( US$11,244 million)



5. For cloud computing business, the Adjusted EBITA margin for 2019 is lower than 2018 even though income from operations have Increased. This means the share-based compensation have taken a huge portion on revenue



6. Adjusted EBITA loss in the quarter ended December 31, 2019 included impairment charges on licensed copyrights of RMB 2.1 billion ( US$302 million), compared to RMB 2.8 billion in the same quarter of 2018. How come the impairment charges on licensed copyrights cost 2.1 billion?



7. Product development expenses have increased drastically from 2018 to 2019, year over year revenue made a loss of 1%



8. Sales and marketing expenses have increased from 2018 to 2019, thus year over year revenue made a loss of 1%



9. Ant financial share-based awards granted to our employees have decreased year-over-year

1. List five areas of concern about the  performance

1. List five areas that may require further investigation

1. Why did Alibaba made a payment of 2.1 billion for impairment charges on licensed copyrights fee



2. Cloud computing segment kept on making a loss, what’s the reason behind it?

Income statement

1. Has the level of sales increased or decreased and by how much?

               Yes, by 44,178,000,000. A 38% year over year change

1. Has this change in sales been reflected in the various levels of profitability?

1. Have there been any major changes in the level of expenses disclosed?

Operating profit have increased by 41% year over year

1. Review the management discussion and analysis sections for reasons for the above changes

“ In the quarter ended December 31, 2019, net cash provided by operating activities was RMB96,505 million (US$13,862 million), an increase of 49% compared to RMB64,898 million in the same quarter of 2018. Free cash flow, a non-GAAP measurement of liquidity, in the quarter ended December 31, 2019 increased by 52% to RMB78,279 million (US$11,244 million), from RMB51,373 million in the same quarter of 2018, which was primarily due to our robust profitability growth as well as a decrease in capital expenditure spending and an increase in annual service fee deposits from merchants. A reconciliation of net cash provided by operating activities to free cash flow is included at the end of this results announcement.”

1. Review segmental information to highlight which divisions or products might be responsible for the changes highlighted above

      “11.11 Global Shopping Festival, During the festival, Alibaba Cloud provided a highly scalable, reliable and secure public cloud infrastructure that handled a single day GMV of RMB268.4 billion (US$38.4 billion). Its public cloud infrastructure and technologies enabled Alibaba Group to process over 544,000 orders per second at peak and 970 petabytes of data without disruption for the full 24 hour period during the festival. This year’s festival also showcased the strength of our leading cyber security technology in the public cloud

environment, which is a key priority of many of our public sector and industry customers

      We believe the migration of the core systems of Alibaba’s e-commerce businesses onto the public cloud is a major milestone that not only is generating greater operating efficiencies for Alibaba but also will encourage more customers to adopt our public cloud infrastructure.

            11.11 is a very important sales day in this year.

Balance sheet

1. Review the balance sheet for major changes in levels of assets or liabilities

Net income in the quarter ended December 31,2019 was RMB 50,132 million ( 7,201 million), an increase of 62% compared to RMB 30,964 million in the same quarter of 2018.

Amortization of intangible assets- Amortization of intangible assets in the quarter ended December 31,2019 was RMB 3,272 million ( US$ 470 million), an increase of 16% from RMB 2,809 million in the same quarter of 2018.

Total current liabilities decreased by 54,789 million from March 31, 2019 to    December 31, 2019.

1. Do the notes to the accounts or the management discussion and analysis allow you to understand why these changes have taken place?

The notes didn’t go into details on why these changes have taken place. Net income increase could be the result of increasing revenue and decreasing costs. Also, Interest and investment income, net in the quarter ended December 31, 2019 was 17,136 million( US$2,462 million), compared to RMB 11,560 million in the same quarter of 2018. The one-time gain of RMB 10.3 billion( US$1.5 billion) in relation to our contribution of the AliExpress Russia businesses into a joint venture we set up with Russian partners. Those could all be reasons why the net assets have increased 62% compared to 2018.

1. Is the group solvent? Does it have more assets than liabilities?

Yes, this group is solvent, it does have more assets than liabilities. The debt to equity ratio is 0.16, the industry standard is 0.43. It indicates that Alibaba’s debt to equity ratio is relatively low, and it is generating enough cash to cover its debt.

13 Are there any potential liquidity issues? Compare the level of current assets to current liabilities

Current ratio=Current assets/ current liabilities

Quick ratio= ( Current assets-inventory) / current liabilities

“ The quick ratio is a measure of how well a company can meet its short-term financial liabilities.”

“ The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short-term obligation. It compares a firm’s current assets to its current liabilities, and is expressed as follows: The current ratio is an indication of a firm’s liquidity.”

Asset utilisation

14 Compare the level of assets/ net assets to levels of activity

Are sales being generated more or less efficiently?

Sales are generated more efficiently. Sales to working capital is a liquidity and activity ratio indicating the amount of money from sales, generated by a dollar of working capital investment. High level of the sales to working capital ratio indicates good efficiency of firm’s sales support with use of its current assets and liabilities. Low working capital turnover means that sales are not adequate to firm's working capital and company's sales are being generated through the unreasonably excessive use of the accounts receivable and inventories, which might cause bad quality debts and obsolete inventory

( https://www.finstanon.com/ratios-dictionary/62-sales-to-working-capital)

Are there any reasons given for this in the management discussion and analysis?

“The increase of direct sales businesses such as Tmall supermarket and New retail, which resulted in increased cost of inventory, as well as our consolidation of Kaola, partly offset by a decrease in content cost by Youku and efficiency gains from our technology and infrastructure.”

Financing

16 What is the company’s share capital?

Number of ordinary shares issued:- Alibaba 2019 Shares outstanding were 2.623 B and in 2018 it was 2.61B

[1]

Nominal value (if appropriate)

17. Does it pay dividends?

There are no dividends payout for this stock

18. Does it have any other types of share?

Diluted earnings per ADS in the quarter ended September 30, 2019 was RMB27.51 (US$3.85) on a weighted average of 21,093 million diluted shares outstanding during the quarter, an increase of 261% compared to RMB7.62 on a weighted average of 21,023 million diluted shares outstanding during the same quarter of 2018. Excluding the one-time gain in relation to the receipt of the 33% equity interest in Ant Financial, impairment of investments and goodwill, share-based compensation expense, revaluation and disposal gains/losses of investments and certain other items, non-GAAP diluted earnings per ADS in the quarter ended September 30, 2019 was RMB13.10 (US$1.83), an increase of 36% compared to RMB9.60 in the same quarter of 2018. A reconciliation of diluted earnings per ADS to non-GAAP diluted earnings per ADS is included at the end of this results announcement. Each ADS represents eight ordinary shares.

19. Are there any long term borrowings?

 Alibaba long term debt for 2019 was 16.66 B, a 12.55% decline from 2018

 Alibaba long term debt for 2018 was 19.055B, a 70.7% increase from 2017

When are they repayable?

 There is no mentioning of debt repayable in the balance sheet statement

20 Work out the gearing ratio

Capital gearing ratio= long term borrowings/ (total equity + long term borrowings)x 100

Debt/ equity ratio= long term borrowings/ total equity x 100

The gearing ratio measures the proportion of a company’s borrowed fund to its equity, the lower the number, the less risky the company’s financial trouble. Since the ratio indicates the financial risk to which a business is subjected, excessive debt can lead to financial difficulties. Gearing ratio from 2018 to 2019 has dropped significantly, it indicates that the company’s borrowing has decreased. Or, the equity has increased.

The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholder’s equity and debt used to finance a company’s assets. Generally speaking, a high debt-to-equity ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations. Low debt-to-equity ratios are more attractive for lenders, since it means that during the event of a business decline, their interests are better protected. Alibaba’s debt/equity ratio has dropped by 1.31 from 2018 to 2019. It means that the business is generating enough cash to repay its debt.

Overall performance

21. Has the overall performance improved as evidenced by

22 Which of the factors identified in your previous analysis explains the above changes?

   Return on capital employed stayed almost the same. Return on net assets have increased by 0.2% and return on equity has increased a lot. Return on capital employed is an accounting ratio used for comparing the relative profitability of companies after taking into account the amount of capital used. This indicates that Alibaba’s capital expediture has stay the same and equity may more of less increased. Overall, the change is minor.

   Higher RONA( Return on net assets) means that the company is using its assets and working capital efficiently and effectively. Since Alibaba’s RONA has increased, it is a sign that Alibaba’s is utilizing its assets and working capital more efficiently.

   Return on equity is a measure of the profitability of a business in relation to the equity, also known as net assets or assets minus liabilities. ( Wikipedia) Alibaba’s ROE has increased from 2018 to 2019. It is a sign that the company is using its investments to generate more earnings.

  Overall, these are great indicators to showcase that the company is managing its capital expenditures, investments and working capital more efficiently.  

 For the above changes, the one-time gain in relation to the receipt of the 33% equity interest in Ant financial. Due to Alibaba’s increasing investment in content production, reducing costs, its’ digital media and entertainment sector has been able to make less of a lost profit.  The increase of cash, as well as decrease in capital expenditure spending and an increase in annual service deposits from merchants are the reasons the cash flow has increased by 49% from 2018 to 2019.

24. How does the performance compare with that of its major competitors? (You may wish to go through a similar review of the competitors’ performance in order to answer this question)

One of Alibaba’s biggest competitor, Tencent

Total revenue of Alibaba is higher than Tencent. But, operating profit of Alibaba is lower than Tencent. Reasons behind it could be Alibaba spend more to operate. Profit attributable to equity holders of the company is also lower than Tencent, which means shareholders have less to claim on. Basic earnings per share of Alibaba is much lesser than Tencent, higher earnings per share is always better than a lower ratio because this means company is more profitable and the company has more profits to give out to shareholders. Alibaba’s monthly MAU is lower than Tencent’s WECHAT AND Weixin, which could just be the fact that Tencent’s key priorities include growing its consumer internet sector.

Share price

Using one of the major stock market websites, find information about the current share price and its history

25. Document any major changes in the price over the last year, and try to isolate the reason for these.

   Singles’ day sales have increased by 5.4 billion from 2018 to 2019. Alibaba goes public in Hong Kong in November 2019. It raises up to $12.9 billion in a landmark Hong Kong listing, according to Reuter.com.

26. Compare the share price movements with those of the market over the last year

“ The company ended up spending a record amount in 2018, over 278.8 billion yuan on product development, sales and marketing, general administration and cost of revenue last year.”

27. Document the following market ratios

28 How does the price earnings ratio compare to the sector and/or market average ratios?

   Tencent’s PE ratio in 2018 is 23.58,  34.15 in 2019

    Baidu’s PE ratio in 2018 is 13.54,  19.21 in 2019

29 What does this tell you about the markets view of the performance?

According to Investopedia, The P/E ratio is calculated as a stock’s current share price divided by its earnings per share( EPS) for a 12-month period, usually the last 12 months. I think Alibaba stock has great potential, even though due to coronavirus, the stock has dropped 5.57%, the PE ratio of Alibaba compares to the PE ratio of Baidu and Tencent show investors that the company is still relatively higher in earning potential and is fairly valued high potential stock.

 References:

1. Investopedia. 2020. Are Stocks With Low P/E Ratios Always Better?. [online] Available at: [Accessed 18 March 2020].



2. Kharpal, A., 2020. Alibaba Shares Soar As Market Looks Past The Company's Record $41 Billion Spending Spree. [online] CNBC. Available at: [Accessed 18 March 2020].



3. South China Morning Post. 2020. Why Alibaba Chose Hong Kong As Home For Its Second IPO. [online] Available at: [Accessed 18 March 2020].



4. 2020. [ebook] Available at: [Accessed 18 March 2020].



5. Alibabagroup.com. 2020. Alibaba Group. [online] Available at: [Accessed 18 March 2020].



6. Aastocks.com. 2020. 詳細報價 Detail Quote. [online] Available at: [Accessed 18 March 2020].