Alibaba Group Debt

BABAN Stock  MXN 1,704  44.81  2.56%   
Alibaba Group Holding holds a debt-to-equity ratio of 0.137. . Alibaba Group's financial risk is the risk to Alibaba Group stockholders that is caused by an increase in debt.

Asset vs Debt

Equity vs Debt

Alibaba Group's liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Alibaba Group's cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the Company is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps Alibaba Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Alibaba Group's stakeholders.
For most companies, including Alibaba Group, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Alibaba Group Holding, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Alibaba Group's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that Alibaba Group's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Alibaba Group is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of Alibaba Group to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Alibaba Group is said to be less leveraged. If creditors hold a majority of Alibaba Group's assets, the Company is said to be highly leveraged.
  
Check out the analysis of Alibaba Group Fundamentals Over Time.

Alibaba Group Holding Debt to Cash Allocation

Many companies such as Alibaba Group, eventually find out that there is only so much market out there to be conquered, and adding the next product or service is only half as profitable per unit as their current endeavors. Eventually, the company will reach a point where cash flows are strong, and extra cash is available but not fully utilized. In this case, the company may start buying back its stock from the public or issue more dividends.
Alibaba Group Holding has accumulated 148.05 B in total debt with debt to equity ratio (D/E) of 0.14, which may suggest the company is not taking enough advantage from borrowing. Alibaba Group Holding has a current ratio of 1.64, which is within standard range for the sector. Debt can assist Alibaba Group until it has trouble settling it off, either with new capital or with free cash flow. So, Alibaba Group's shareholders could walk away with nothing if the company can't fulfill its legal obligations to repay debt. However, a more frequent occurrence is when companies like Alibaba Group Holding sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Alibaba to invest in growth at high rates of return. When we think about Alibaba Group's use of debt, we should always consider it together with cash and equity.

Alibaba Group Assets Financed by Debt

Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the Alibaba Group's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Alibaba Group, which in turn will lower the firm's financial flexibility.

Alibaba Group Corporate Bonds Issued

Understaning Alibaba Group Use of Financial Leverage

Leverage ratios show Alibaba Group's total debt position, including all outstanding obligations. In simple terms, high financial leverage means that the cost of production, along with the day-to-day running of the business, is high. Conversely, lower financial leverage implies lower fixed cost investment in the business, which is generally considered a good sign by investors. The degree of Alibaba Group's financial leverage can be measured in several ways, including ratios such as the debt-to-equity ratio (total debt / total equity), or the debt ratio (total debt / total assets).
Alibaba Group Holding Limited, through its subsidiaries, provides online and mobile commerce businesses in the Peoples Republic of China and internationally. The company was founded in 1999 and is based in Hangzhou, the Peoples Republic of China. ALIBABA GROUP operates under Specialty Retail, Other classification in Mexico and is traded on Mexico Stock Exchange. It employs 252084 people.
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Additional Information and Resources on Investing in Alibaba Stock

When determining whether Alibaba Group Holding offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of Alibaba Group's financial statements, including income statements, balance sheets, and cash flow statements, to assess its financial health. Key financial ratios are used to gauge profitability, efficiency, and growth potential of Alibaba Group Holding Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Alibaba Group Holding Stock:
Check out the analysis of Alibaba Group Fundamentals Over Time.
You can also try the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
Please note, there is a significant difference between Alibaba Group's value and its price as these two are different measures arrived at by different means. Investors typically determine if Alibaba Group is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Alibaba Group's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.

What is Financial Leverage?

Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.

Leverage and Capital Costs

The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.

Benefits of Financial Leverage

Leverage provides the following benefits for companies:
  • Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
  • It provides a variety of financing sources by which the firm can achieve its target earnings.
  • Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.