The document provides a financial ratio analysis of Lenovo Company for the years 2012 and 2013. It finds that most profitability ratios improved over this period, such as return on equity and net profit margin, indicating better profitability. However, the general expenses ratio worsened. Most stability ratios also improved, like the working capital ratio, but the debtors turnover ratio increased, meaning it took longer to collect debts. The document recommends not investing in Lenovo shares due to their very high price-earnings ratio of 200, meaning it would take over 200 years for an investor's initial investment to be recouped.

1. SCHOOL OF ARCHITECTURE , BUILDING AND 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

3. 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 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)
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)
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)
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)
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)
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.
%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
%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
%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
%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
%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

5. Financial Expenses
Ratio (FER)
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.
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)
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)
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)
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)
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.
%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
1:1
677,809,11
400,820,11
LiabilityCurrentTotal
AssetCurrentTotal
=
=
=
1:02.1
474,091,12
737,389,12
LiabilityCurrentTotal
AssetCurrentTotal
=
=
=
%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
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
=






÷=






÷=
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
=






÷=






÷=

6. Interest Coverage
Ratio (ICR)
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.
Appendix 1
Price Earning Interpretation
P/E Ratio 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.
days93.11
484,43
416,475484,43
ExpInterest
ProfitNetexpInterest
=
+
=
+
=
times73.15
869,42
592,631869,42
ExpInterest
ProfitNetExpInterest
=
+
=
+
=
years200
0616.0
32.12
sharePerEarning
PriceShareCurrent
=
=
=

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

8. 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.
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

13. 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