Lenovo Group Limited-A Good Investment for the Fund Harvard Case Solution & Analysis

Lenovo Group Limited-A Good Investment for the Fund Case solution

Introduction

Lenovo was founded in 1984 by Li Chuanzhi and it has two headquarters; one in Beijing and the other in North Carolina. In the year 2005, Lenovo purchased IBM’s and positioned itself into global PC industry as a market leader in China. The Chinese market is the world’s largest and emerging market with respect to PC industry. The company achieved a significant growth with respect to share price and by the end of year 2013 share price of the company was $0.91.
Grisham is the portfolio manager of the Penhall Investment Funds and he is analyzing the performance of the Lenovo group in order to appraise the investment that being made by the Penhall Fund in Lenovo Group.

Ratio Analysis

Grisham team performs ratio analysis over five companies in order to compare the performance of Lenovo with respect to its competitors.The financials of the company are showing mixed results. Liquidity ratios show the financial position of the company in order to meet its current debt obligations.

The company has sufficient cash available in order to invest in short term project and securities in order to take the advantage of the available opportunity. Moreover, the company is performing well in this segment with respect to its competitors as it has significant cash available with respect to Samsung, Nokia, HP and Black Berry.

It is expected that the company is not performing well in current ratio and quick ratio segment with respect to its competitors. Current ratio and quick ratio of the company are low as compared to Apple, Dell, Nokia and Samsung,which means that the company’s ability to meet its short term obligations is low as compared to its competitors.

Inventory days, debtor days and cash conversion cycle of the company are low as compared to Apple, Acer and Dell, which are also the market share leader in global PC Industry.

In profitability the company’s financials are also showing mix results, which are strong from some competitors and are also weak from some competitors which could be due to continuous decrease in the prices of PC’s, tablets and mobile phones. Apart from this, the company’s sales ratio are satisfactory and area fair enough to attract potential customers.

On the other hand, the company’s financial leverage is high among the peers group, which could be a reason of competitive disadvantage as high leverage for any company is not a good sign and it could send a negative signal towards the potential investors of the company and it could affect the financials of the company adversely.

Strengths

Lenovo is operating in a global industry and it is among the market share leaders. Each company in the PC industry is following the strategy of out sourcing for its manufacturing while Lenovo is a vertically integrated firm and most of the manufacturing processes are performed in house therefore Lenovo Group is at a clear advantage among competitors.
Moreover, Lenovo has well established information system and it is an innovative firm among all competitors, which provides Lenovo a competitive advantage over its competitors. In addition to this, Lenovo is a technology oriented firm and in this age of technology, Lenovo is offering more advanced and latest smart phones, tablets and laptops in order to remain competitive in the industry which provides Lenovo a key strength in industry.........................

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