PHINMA ST.
JUDE COLLEGE MANILA
College of Management and Accountancy
Business Administration
Case Study about Lenovo
The Case Study is Presented to the
PHINMA St. Jude College
College of Management Accountancy
As partial fulfillment in Capital Market Class
By
JENNY NICOLE BELANDO
TRISHA PAYUD
ALFREDO TAN
JHANDINE REDOÑA
ARGEM BONDOC
To
MS. CRISHLYNE BISNAN
Professor
INTRODUCTION
Lenovo, headquartered in Beijing, China, is a global technology company that
designs, produces, and markets a wide range of cutting-edge products and
services. Some of the key products offered by Lenovo include ThinkPad
personal computers, notebook computers, tablet computers, desktop
computers, mobile phones, workstations, servers, electronic storage,
information technology (IT) management software, and smart televisions.
Lenovo has established itself as the world's second-largest PC vendor, behind
Hewlett-Packard (HP), with a strong market presence in over 160 countries.
Products and Services Offered:
Lenovo's diverse portfolio encompasses an extensive array of cutting-edge
products and services. From the iconic ThinkPad personal computers and
ThinkCentre desktops to notebook computers, tablet computers, mobile phones,
workstations, servers, electronic storage, IT management software, and smart
televisions, Lenovo caters to the diverse needs of consumers and businesses
worldwide. With its U.S. headquarters located in Morrisville, North Carolina, and
its registered office in Hong Kong, Lenovo operates across more than 60
countries, selling its products in approximately 160 countries.
In terms of financial performance, Lenovo has shown steady growth, with
revenues increasing by 14.5 percent to $33.8 billion in fiscal year 2012/2013,
while net income rose by 33 percent to $631 million. Lenovo sells its products
directly to consumers and businesses through various channels, including
online sales, company-owned stores, chain retailers, and distributors.
Lenovo has made strategic moves to expand its global footprint and enhance its
technological capabilities through acquisitions and partnerships. In 2005,
Lenovo acquired IBM's PC business, which accelerated its access to foreign
markets and improved its branding and technology. Additionally, Lenovo formed
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a PC joint venture with NEC in Japan to boost its worldwide sales and presence
in key markets.
Furthermore, Lenovo has ventured into the smartphone market, becoming a
major player in China and expanding its sales into Russia, Indonesia, and India.
The company's diverse portfolio of smartphones, coupled with strategic
investments in research and development facilities, underscores Lenovo's
commitment to innovation and growth in the mobile technology sector.
Overall, Lenovo's strategic acquisitions, global expansion efforts, and focus on
delivering innovative products and services have positioned it as a key player in
the technology industry, driving its growth and success in a competitive market
landscape.
In this Case Study will show the Computation of Financial Ratio.
❖ Liquidity Ratio
1. Current Ratio = Current Assets / Current Liabilities
12,390 + 11,820 = 24,210 / 2 = 12,105 (Current Assets)
12,091 + 11,809 = 23,900 / 2 = 11,950 (Current Liabilities)
12,105 / 11,950 = 1.01
Interpretation: Lenovo has a current ratio of 1.01. This indicates that the
company has enough current assets to cover its current liabilities.
2. Quick Ratio = Quick Assets / Current Liabilities
3,872.5+6,495.5 = 10,368 ( Quick Assets )
12,091 + 11,809 = 23,900 / 2 = 11,950 (Current Liabilities)
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10,368 / 11,950 = 0.88
Interpretation: Lenovo has a quick ratio of 0.88 which is significantly below 1.
This indicates that the company has difficulties in meeting its obligation as its
ratio is below 1 but further studies and representation will vary the company’s
liquidity position.
3. Receivable Turnover = Net Credit Sales / Average Receivables
29,800 + 26,128 = 55,928 / 2 = 27,964 (Net Sales)
6,694 + 6,297 = 12,991 / 2 = 6,495.5 (Average Receivables)
27,964 / 6,495.5 = 4.31
Interpretation: The receivable turnover of Lenovo is 4.31 which is quite higher.
This indicates that the company is efficient in collecting accounts receivable
payments from its customers or clients.
4. Average Age of Receivable = 360 days / Receivables Turnover
360 days / 4.31 = 84 days
Interpretation: The average age of receivable of lenovo company is 84 days
which means that it takes 3 months from them to collect receivable payments
and the lower the days computed the quickly the company collects their
receivable from its clients.
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5. Inventory Turnover = Cost of Goods Sold / Average Inventory
COGS = Revenue - Gross Profit
COGS = 33,873 - 4,073 = 29,800
COGS = 29,574 - 3,446 =26,128
29,800 + 26,128 = 27,964 (Cost of Goods Sold)
1,965 + 1,218 = 1,591.5 (Average Inventory)
27,964 / 1,591.5 = 17.57
Interpretation: The Inventory turnover of lenovo is 17.57 which indicates that the
company sold and replace their items which means that they are efficient on
selling them on the market.
6. Average Age of Inventory = 360 days / Inventory Turnover
360 days / 17.57 = 20 days
Interpretation: Lenovo’s average age of inventory is 20 days which is high that
means that they are selling inventory rapidly which shows effective strategies
and management of the company.
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❖ Solvency Ratio
1. Debt - Equity Ratio = Total Liabilities / Total Shareholders Equity
Total Liabilities
FY2012/13 - 12,091
FY2011/12 - 11,809
12,091 + 11,809 = 23,900
23,900/2 = 11,950
Total Shareholders Equity
FY2012/13 - 2,680
FY2011/12 - 2,448
2,680 + 2,448 = 5,128
5,128/2 = 2,564
Debt - Equity Ratio - 11,950/2,564 = 4.66
Interpretation: A Debt-to-Equity Ratio of 4.66 indicates that the company has a
higher proportion of debt relative to its equity. This suggests that the company
relies more on debt financing to fund its operations and growth compared to
equity financing. While high debt levels can amplify returns on equity during
favorable economic conditions, they also increase financial risk, as the company
has higher interest payments and debt obligations to fulfill. Investors and
creditors may perceive a higher Debt-to-Equity Ratio as a higher risk factor
when evaluating the company's financial health and stability.
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2. Interest Coverage = EBIT(Earning before interest and taxes) / Interest
Expense
Operating profit / EBIT
FY2012/13 - 800
FY2011/12 - 584
800 + 584 = 1,384
1,384/2 = 692
Interest expense
Financial cost FY2012/13 - 42
Financial cost FY2011/12 - 44
42 + 44 = 86
86/2 = 43
Interest Coverage Ratio - 692/43 = 16.09
Interpretation: A high Interest Coverage Ratio, like 16.09 indicates that the
company is generating significantly more operating profit compared to its
interest expenses. This suggests that the company is in a strong financial
position and has sufficient earnings to cover its interest payments comfortably. It
implies lower risk for lenders and investors concerning the company's ability to
meet its debt obligations.
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❖ Profitability Ratio
1. Return on Asset = IBIT(Income Before Interest and Taxes) / Average
Total Asset
Operating Income / EBIT
FY2012/13 - 800
FY2011/12 - 584
800 + 584 = 1,384
1,384/2 = 692
Average Total Asset
Mar 31, 2013 - 12,390
Mar 31, 2012 - 11,820
12,390 + 11,820 = 24,210
24,210/2 = 12,105
Return On Asset - 692/12,105 = 0.05
Interpretation: The return on assets of approximately 0.05 indicates that for
every dollar of assets the company holds, it generates approximately $0.05 in
operating income or EBIT. This implies that for each dollar invested in assets,
the company earns 5 cents in operating income.
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2. Return On Sales = Income / Net Sales
Income
FY2012/13 - 800
FY2011/12 - 584
800 + 584 = 1,384
1,384/2 = 692
Net Sales
FY2012/13 - 33,873
FY2011/12 -29,574
33,873 + 29,574 = 31,724.5
Return On Sales - 692/31,724.5 = 0.02
Interpretation: The ROS at 0.02 implies that the company makes a low
efficiency in converting sales to profit. A higher return on sales would be
desirable, indicating better utilization of revenue for profit generation.
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3. Return on Owner’s Equity = Net Income / Average Owner’s Equity
Net Income = revenue - cost of sale - expense
revenue
FY2012/13 - 33,873
FY2011/12 - 29,574
33,873 + 29,574 = 63,447 / 2 = 31,723.5
cost of sale
FY2012/13 - 29,800
FY2011/12 - 26,128
29,800 + 26,128 = 55,298 / 2 = 27,964
expense
FY2012/13 - 1,888, 847, 623
FY2011/12 - 1,691, 730, 453
1,888 + 1,691 =3,579 / 2 =1,789.5
847 + 730 = 1,577 / 2 = 788.5
623 + 453 = 1,076 / 2 = 538
Net income = 31,723.5 - 27,964 - 1,789.5 - 788.5 - 538 = 643.5
Average Owner’s Equity
As of Mar 31, 2013 - 2,680
As of Mar 31, 2012 - 2,448
2,680 + 2,448 = 5,128
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5,128/2 = 2,564
Return on Owner’s Equity - 643.5/2,564 = 0.25
Interpretation: An ROE of 0.25, which means for every unit of equity invested
in the company, the shareholders are earning 25% return on their investment.
While this ROE value might not be exceptional when compared to industry
standard, it shows that Lenovo is generating some profit from the equity
invested by its shareholders.
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CONCLUSION
Based on the financial ratios provided in Lenovo, we can draw the following
conclusions:
1. Profitability and Asset Utilization: The return on sales (ROS) of 0.02 and
return on assets (ROA) of 0.05 indicate that Lenovo is efficiently managing
expenses and assets to achieve moderate profit margins and strong asset
utilization.
2. Efficiency in Inventory Management: The consistent and efficient inventory
turnover rates in 2012 and 2013 indicate that Lenovo’s effectively managed it’s
inventory levels. The inventory turnover of Lenovo is 17.57 which indicates that
the company sold and replaced their items which means that they are efficient in
selling them on the market.
3. Liquidity and Short-Term Obligations: Lenovo has a current ratio of 1.01. This
indicates that the company has enough current assets to cover its current
liabilities, while the quick ratio decrease indicates a potential challenge in
covering current liabilities with quick assets.
4. Debt and Solvency: The Debt-to-Equity Ratio of 4.66% indicates that the
company has a higher proportion of debt relative to its equity. This suggests
that the company relies more on debt financing to fund its operations and
growth compared to equity financing. While high debt levels can amplify returns
on equity during favorable economic conditions, they also increase financial risk,
as the company has higher interest payments and debt obligations to fulfill.
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RECOMMENDATION
In premise, the current challenges of the company have higher interest
payments and debt obligations to fulfill, although they are handling their finances
well in terms of assets and liabilities. The company needs to make new
strategies to increase its sales and assets to cover debts and its interest.New
Marketing strategies should also be open in order for the company to stay on
trend with new generations of customers with the continuous growth of
innovation in technology. New and updated innovative products should also be
studied that are viable for the market and the needs of its consumers. Lenovo,
despite its profitability, should not only maintain its current trends but continue to
improve in terms of new applications, especially Artificial Intelligence (AI) is
widely used, therefore adding AI technology to product solutions will boost
efficiency and satisfy the demands of the tech companies.
In Lenovo was the quality of the tools such as in personal manufacturing that
know the any devices in Lenovo. The software updates were essential to keep
the Lenovo device up to date with security patches of software and ensure the
performance of Windows updates in the services. The Backup data was to
ensure the lost data in the case of the disasters of their hardware’s failure of the
good idea and also to backup the important files regularly in hardware. Lenovo
offers customer services that includes phone emails and also self-support
resources in the websites. We can protect any Lenovo devices from the physical
damages and wear and tears that consider investing in a protective case of
Lenovo. The importance of performance was to be consider using the tools and
the hardware monitoring management of the professional environment to find
advice in Lenovo.
The company should also increase the investment through its investors to ride
with the continued growth of Technology. They should also consider getting
ideas from different companies, new generation trends and conduct their own
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study to cater possible markets in the future. Hire more enthusiastic technology
driven individuals with visions in terms of product development. Indulge the new
generations in terms of marketing strategy such as Social media influencers that
can generate new prospects in terms of product availability.
The brand name should maintain its visibility in the market platforms, events and
social media to increase the branding that could equate to sales.
Lenovo needs to take a expansive strategy that includes technological
innovation, financial caution, recruiting workers, market research, and modern
advertising techniques in order to ensure future growth success and negotiate
current obstacles in the quickly developing technology market
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