The document provides background information on Lenovo Company, including its history, products, acquisitions and growth. It then analyzes Lenovo's financial ratios from 2012-2013, finding that most profitability and stability ratios improved, indicating better control of expenses. However, the share price is not suitable for investment given its extremely high price-to-earnings ratio of 200 years, meaning an investor would have to wait over 200 years to recover their investment. In conclusion, while Lenovo's financial performance has strengthened, its shares are too expensive for conservative investors.

1. SCHOOL OF ARCHITECTURE , BUILDINGAND DESIGN
FOUNDATION IN NATURAL BUILT ENVIRONMENT
Accounting Report
Financial Ratio Analysis
 Title : Lenovo Company
 Group Member : Wong Qin Kai (0320024)
Lim Ting Le (0320028)
Lee Jia Kiam (0320029)
 Subject : Basic Accounting (ACC30205)
 Lecturer : Chang Jau Ho
 Submission Date : 4th
June 2015 (Week 16)

2. Brief Background History of Lenovo Company
Lenovo is a US$39 billion personal technology company which engineers PCs and
mobile internet devices to customers. Lenovo is also the world’s largest PC vendor and
fourth largest smart phone company which serves customers in more than 160 countries.
Besides that, its executive headquarters are located in Beijing and Morrisville. In year
1988, the company was incorporated in Hong Kong and was listed on The Stock
Exchange of Hong Kong since 1994. Lenovo’s business is mostly built on product
innovation, highly-efficient global supply chain and strong strategic execution which was
formed by Lenovo Group’s acquisition of the former IBM Personal Computer Division.
The company development, manufacture and market are known to be reliable.
Nonetheless, they supply high-quality, secure and user-friendly products and services. Its
product lines include legendary Think-branded commercial PCs and Idea-branded
consumer PCs, as well as servers, workstations, and a family of mobile internet devices,
including tablets and smart phones. Lenovo also offers Internet access through its
FM365.com portal.
Recent Development
In year 2010, Lenovo introduced LePhone, which is the company first smart phone.
Also, Lenovo sold its 60 millionth ThinkPad in the same year. In the following year,
Lenovo formed Mobile Internet Digital Home (MIDH) business unit to attract growing
opportunity in consumer devices such as smart phones, tablets and smart TV. On the other
hand, Lenovo formed a joint venture with NEC, creating the largest PC company in Japan.
Furthermore, Lenovo acquired Medion, a PC and consumer electronics company based in

3. Germany, substantially increasing presence in consumer market in Western Europe. In
year 2012, Lenovo formed a joint venture with EMC to sell servers in China and develop
storage solutions. In the same year, Lenovo acquired Stoneware, a software firm focused
on cloud computing. Most importantly, it sold its 75 millionth ThinkPad. Lastly, in year
2013, Lenovo became the world's first PC company, attained 329th in the Fortune 500 list
of the world's largest companies and also became the world’s third smart phone company.
Lenovo then acquired CCE, a leading consumer electronic company in Brazil. Lenovo
also has evolved its decision-making process. Instead of demanding fealty based on titles
and seniority, the current approach combines the best of the Chinese long-term focus on
strategy with the West’s intense focus on meeting quarterly targets a former IBM
executive turned private equity maven the one who helped broker and finance Lenovo’s
purchase of IBM’s personal computer unit.Grabe’s New York–based firm, General
Atlantic, remains an investor, and he currently sits on the board. In another key of respect,
Lenovo has distinguished itself from other Chinese companies, it has created a brand
name that is recognizable in markets around the world. No other Chinese company that
competes internationally has been willing to spend hundreds of millions of dollars
annually to achieve that. That is an amazing recent development for further process of the
business.

4. Ratio Analysis of the Lenovo’s Annual Report for 2012 & 2013
The table below show the calculations and interpret the trends from 2012 to 2013 periods.
Profitability Ratios 2012 2013 Interpretation
Return On Equity
(ROE)
%20.22
100
5.434,141,2
416,475
100
O/EAverage
ProfitNet



x
x
%63.24
100
075,564,2
592,631
100
O/EAverage
ProfitNet



x
x
During the period 2012 to
2013,the ROE has increase
from 22.20% to 24.63%. This
owner is getting more return
from his capital when compare
to last year.
Net Profit Margin
(NPM)
%61.1
100
438,574,29
416,475
100
SalesNet
ProfitNet



x
x
%86.1
100
401,873,33
592,631
100
SalesNet
ProfitNet



x
x
During the period 2012 to
2013 , the NPM has increase
from 1.61% to 1.86%.The
business ability to control its
expenses is better than last year.
Gross Profit Margin
(GPM)
%65.11
100
438,574,29
222,446,3
100
SalesNet
ProfitGross



x
x
%03.12
100
401,873,33
890,073,4
100
SalesNet
ProfitGross



x
x
During the period 2012 to
2013 , the GPM has increase
from 11.65% to 12.03%.The
business ability to control its
COGS expenses us better than
last year.
Selling Expenses
Ratio (SER)
%72.5
100
438,574,29
778,690,1
100
SalesNet
ExpSellingTotal



x
x
%57.5
100
401,873,33
101,888,1
100
SalesNet
ExpSellingTotal



x
x
During the period 2012 to 2013,
the SER has decrease from
5.72% to 5.57%.The business
ability to control its selling
expenses is getting better.
Genaral Expenses
Ratio (GER)
%4
100
438,574,29
628,183,1
100
SalesNet
ExpGenaralTotal



x
x
%34.4
100
401,873,33
675,470,1
100
SalesNet
ExpGeneralTotal



x
x
During the period 2012 to
2013 , the GER has increase
from 4% to 4.34%.The business
ability to control its general
expenses is getting worst.
Financial Expenses
Ratio (FER)
%15.0
100
438,574,29
484,43
100
SalesNet
ExpFinancialTotal



x
x
%13.0
100
401,873,33
869,42
100
SalesNet
ExpFinancialTotal



x
x
During the period 2012 to
2013 , the FER has increase
from 0.15% to 0.13% .The
business ability to control its
financial expenses is getting
better.
*Unit represented in US$’000.

5. Stability Ratios
The table below show the calculations and interpret the trends from 2012 to 2013 periods.
Profitability Ratios 2012 2013 Interpretation
Working Capital
Ratio (WCR)
1:1
677,809,11
400,820,11
LiabilityCurrentTotal
AssetCurrentTotal



1:02.1
474,091,12
737,389,12
LiabilityCurrentTotal
AssetCurrentTotal



During the period 2012 to
2013, the business’s WCR
has increase from 1:1 to
1.02:1. The business ability
in paying off its current
liabilities are getting better.
In addition, it doesn’t satisfy
the minimum ratio of 2:1.
Total Debt Ratio
(TDR)
%57.84
100
748,860,15
779,412,13
100
AssetsTotal
sLiabilitieTotal



x
x
%12.84
100
997,881,16
816,201,14
100
AssetsTotal
sLiabilitieTotal



x
x
During the period 2012 to
2013, the business’s TDR
has decrease from 84.57% to
84.12%.The total debt of the
business has decrease.
However ,it doesn’t satisfy
the 50% maximum limit.
Stock Turnover Ratio
(STR)
days12.14
098,011,1
216,128,26
365
InventoryAverage
soldgoodsofCost
365















days5.19
5.642,591,1
511,799,29
365
InventoryAverage
soldgoodsofCost
365















During the period 2012 to
2013 , the STR has increased
from 14.12days to 19.5days.
The business sells its goods
faster compared to last year.
Debtor Turnover
Ratio (DTR)
days9.127
5.595,181,5
219,787,14
365
DebtorsAverage
SalesCredit
365















days140
5.394,495,6
5.700,936,16
365
DebtorsAverage
SalesCredit
365















During the period 2012 to
2013, the DTR has increase
from 127.9 days to 140 days.
The business is taking more
times to collect its debts.
Interest Coverage
Ratio (ICR)
days93.11
484,43
416,475484,43
ExpInterest
ProfitNetexpInterest





times73.15
869,42
592,631869,42
ExpInterest
ProfitNetExpInterest





During the period 2012 to
2013 , the ICR has increase
from 11.93 times to 15.73
times.The business ability to
pay its interest expenses is
getting better.However , the
business should never fall
below 5 times.
*Unit represented in US$’000.

6. Appendix 1
Price Earning Interpretation
P/E Ratio
years200
0616.0
32.12
sharePerEarning
PriceShareCurrent



The P/E Ratio of Lenovo’s Company is
200 years.This means an investor who
bought a share of Lenovo will have to
wait for 200 years to recoup his/her
investment. In addition,a investor will
normally pay below 15 years for a share.

7. Investment Recommendation
Based on the calculation of the ratios , the overall profitability seems to be good
and stable during the period 2012 to 2013. As you can see , the Return On Equity (ROE)
of the Lenovo’s Company has gradually increased by 2.43% when compare to
2012 ,which means that the owner is getting more return from his capital. However ,for
the other ratios such as Net Profit Margin (NPM),Gross Profit Margin (GPM), Selling
Expenses Ratio (SER) and Financial Expenses Ratio (FER) had increased slightly except
for the General Expenses Ratio (GER). It’s because the business ability to control its
expenses is getting worst.
For the stability ratios, the calculation of Working Capital Ratio (WCR) , Stock
Turnover Ratio (STR) and Interest Coverage Ratio (ICR) are getting better when compare
to last year. About the Debtor Turnover Ratio, the business is taking more times to collect
their debts because the ratio of it has vastly increase by 12.1 days. As you can see , the
Total Debt Ratio (TDR) has decrease by 0.45% during the period 2012 and 2013 but it
still doesn’t satisfy with 50% maximum limit.
In conclusion, Lenovo’s Company share is not suitable for investment because the
higher P/E ratio and the more expensive a share is. The calculation shown that the ratio of
Lenovo’s Company is 200 years, means that the investor will have to wait even more than
200 years to claim back his original principal. Today, a conservative investor will
normally purchase with P/E ratio of 15 or less so that’s why I recommend the share of
Lenovo’s company is not suitable for investment.

8. Appendix 2
Income Statement (2012 to 2013)

9. Income Statement (2012 to 2013)

10. Balance Sheet (2012 to 2013)

11. Balance Sheet (2012 to 2013 )

12. References
 (2013, June 1). Retrieved May 27, 2015, from
http://www.lenovo.com/ww/lenovo/pdf/report/E_099220130531d.pdf
 (n.d.). Retrieved May 27, 2015, from
http://www.lenovo.com/ww/lenovo/pdf/lenovo-factsheet-2012-mar-eng.pdf
 Lenovo Group Limited SWOT Analysis. (2013). Lenovo Group, Ltd. SWOT Analysis, 1-7.
 Lenovo Reports First Quarter 2010/11 Results.(Financial report). (2010, August 31). China
Weekly News. Retrieved May 27, 2015, from
http://www.highbeam.com/doc/1G1-235740273.html?
 Domestic Company Profiles. (2010). China Consumer Electronics Report, 2(2), 44-47.
 992:Hong Kong Stock Quote. (n.d.). Retrieved May 28, 2015, from
http://www.bloomberg.com/quote/992:HK
 Price-Earnings Ratio (P/E Ratio) Definition | Investopedia. (2003, November 26).
Retrieved June 3, 2015, from http://www.investopedia.com/terms/p/price-earningsratio.asp