Alibaba is the most popular Trading Assurance Company with more than one million suppliers. The company deals in many types of products such as computers, clothing, phones and accessories, jewelry and watches, bags and shoes, consumer electronics, and furniture. The products are quality assured, and they can also provide a 100% refund.
Strengths of Alibaba
From the information presented below, we can deduce that Alibaba is the best stock to invest as compared with its competitor, the eBay. The following reasons justify this stand. First, Alibaba generates a very high amount of sales every year by maintaining a lower cost for its products. For example, the profit margin for Alibaba were 25.2%, 27.5%, 70.65%, and 31.6% for the years 2018, 2017, 2016, and 2015 respectively. This is relatively higher than that of eBay which was 23.54%, -10.62%, 80.92%, and 20.08% for the respective periods except in 2016 when the profit margin for eBay was 80.92%. However, the Return On Equity (ROE) results show a steady generation of profits every year for Alibaba as compared with its competitor, eBay, which ran at a loss in 2017 with the ROE of -10.92%.
Second, Alibaba's investment has lower risks as compared with eBay. By comparing the financial leverage for both firms, Alibaba has a relatively lower financial leverage than eBay for the period between the years 2015 to 2018. For example, the financial leverage for Alibaba was 1.96, 1.82, 1.68, and 1.76 for the years 2018, 2017, 2016, and 2015 respectively. This was lower than eBay's which was 3.63, 3.22, 2.26, and 2.70 for the respective years. This means that Alibaba is more financially stable than eBay. Therefore, it does not borrow a lot of debts to acquire additional assets as does eBay.
Third, Alibaba's high financial cash flow guarantees the security of investments made with the company. Alibaba borrows a relatively low amount of money to fund its extra assets as compared with eBay. Therefore, this gives it less burden for repaying such debts. It, therefore, remains with more cash from the investments.
Weakness of Alibaba
Alibaba has one notable weakness. It has a relatively lower asset turnover ratio as compared with eBay. The lower asset turnover ratio limits Alibaba's number of sales. If Alibaba can improve on its assets turnover ratio, then its profit margin can grow remarkably higher than that of eBay.
From the Du Pont equations presented below, it can be seen that Alibaba Group generates higher sales than eBay while maintaining a reduced cost of its products. This can be deduced from its profit margin that is relatively higher than that of eBay for the years 2018, 2017, and 2015. On the other hand, eBay sells its goods at a lower profit margin, but it has a relatively higher asset turnover ratio that Alibaba is showing that it makes a large number of sales. Moreover, Alibaba's business seems to be less risky as compared with eBay since its financial leverage is relatively lower than that of eBay for the three consecutive years.
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