2. What is Ratio Analysis?
• It is Not just comparing different numbers from the balance
sheet, income statement and cash flow statement.
• It is about comparing the numbers against previous years, other
companies, the industry or even the economy in general.
• Ratios look at the relationships between individual values and
relate them to how a company has performed in the past, and
might perform in the future.

3. Ratio Analysis
 LIQUIDITY RATIOS: tests the ability of a firm to meet its
current liabilities
 SOLVENCY RATIOS: tests the long term solvency of a
firm
 TURNOVER RATIOS: indicates the efficiency with which
assets are utilized
 PROFITABILITY RATIOS: measures the efficiency of a
business

4. Liquidity Analysis
RATIOS LENOVO LENOVO HP HP
(2011) (2010) (2011) (2010)
Current Ratio: (Current Assets/Current 0.99 0.97 1.01 1.10
Liabilities)
Quick Ratio: (Current Assets- Stock/Current 0.89 0.83 0.58 0.66
Liabilities)
Interpretations
Current ratio: Normally a current ratio of 2:1 is considered as satisfactory
HP has a higher current ratio that is better able to meet its current liabilities
Quick ratio: Normally a quick ratio of 1:1 is considered satisfactory. Lenovo
has enough short term assets to pay its short term liabilities.

5. Solvency Analysis
RATIOS LENNOVO LENNOVO HP HP
(2011) (2010) (2011) (2010)
Long Term Debt / Equity 0.00 0.18 0.58 0.38
Total Debt / Equity 0.14 0.22 0.79 0.55
Total Debt / Capital Employed 0.10 0.14 0.44 0.36
Proprietary ratio: (share holders funds / 0.17 0.18 0.30 0.32
total assets)
Interpretation:
Debt Equity Ratio: Here debt equity ratio is less in 2011 for Lenovo, which is
good for the company as it shows the debt is paid much faster in that year.
As compared to HP, Lenovo has a better financial position.

6. Interpretation of solvency analysis
RATIOS LENNOVO LENNOVO HP HP
(2011) (2010) (2011) (2010)
Proprietary ratio: (share holders 0.17 0.18 0.30 0.32
funds / total assets)
Interpretation:
Proprietary ratio: The standard proprietary ratio should be1:3. The higher the
Proprietary ratio the stronger the financial position of the company is but neither of
the company has been able to meet the standard ratio.

7. Activity Ratio
RATIOS LENOVO LENOVO HP HP
(2011) (2010) (2011) (2010)
Inventory Turnover Ratio: (COGS/Avg. 23.92 16.85 16.99 19.49
Stock)
Fixed Asset Turnover Ratio: (Net 11.02 8.62 10.35 10.71
Sales/Fixed Assets)
Total Asset Turnover Ratio: (Net 8.00 5.34 0.98 1.01
Sales/Total Asset)
Capital Turnover Rate: (Sales/Capital 8.08 6.54 2.08 2.26
Employed)

8. Interpretation of Activity Ratio
RATIOS LENOVO LENOVO HP HP
(2011) (2010) (2011) (2010)
Inventory Turnover Ratio: (COGS/Avg. 23.92 16.85 16.99 19.49
Stock)
Fixed Asset Turnover Ratio: (Net 11.02 8.62 10.35 10.71
Sales/Fixed Assets)
Interpretation:
Inventory Turnover Ratio: if the ratio is higher it is better for the company
because it show that finished stock is rapidly turnover and low stock turnover is
is not desirable because it show obsolete stock or carry too much of stock, so Lenovo
is doing well than HP.
 Fixed Asset Turnover Ratio: The higher the ratio is the better is the
performance of the company and low ratio indicate that fixed assets are
not being effectively utilized, so Lenovo is doing well in 2011.

9. Interpretation of Activity Ratio
RATIOS LENOVO LENOVO HP HP
(2011) (2010) (2011) (2010)
Total Asset Turnover Ratio: (Net 8.00 5.34 0.98 1.01
Sales/Total Asset)
Capital Turnover Rate: (Sales/Capital 8.08 6.54 2.08 2.26
Employed)
Interpretation:
Total Asset Turnover Ratio: The higher the ratio is the higher will be the
overtrading of total assets, while low ratio reveal idle capacity, so Lenovo is doing
good in compare to HP.
Capital Turnover Rate: The higher the ratio the greater are the profit and a
low capital turnover ratio should be taken to mean sufficient sales are not
being made and profit are low, so here Lenovo is doing good profit in 2011
and also in compare to HP.

10. Profitability Analysis
RATIOS LENOVO LENOVO HP HP
(2011) (2010) (2011) (2010)
Return On Equity: (Profit-Dividend Due To 0.148 0.080 0.183 0.216
Pref. Shareholder/Equity Share Capital)
Return On Total Assets: (PBIT/Total 2.55 1.44 5.46 7.04
Asset)*100
Operating Profit Ratio: (Operating 1.77 1.32 7.61 9.11
Profit/Net Sales)*100
Net Profit Ratio: (Net Profit After Tax/Net 1.27 0.78 5.56 6.95
Sales)*100
Return on capital employed: 10.22 5.10 16.00 20.00
(PBIT/capital employed)*100
Earnings Per Share: (NPAT/No of equity 2.84 1.42 1.68 2.08
shares issued)

11. Interpretation of Profitability Analysis
RATIOS LENOVO LENOVO HP HP
(2011) (2010) (2011) (2010)
Return On Equity: (Profit-Dividend Due To 0.148 0.080 0.183 0.216
Pref. Shareholder/Equity Share Capital)
Return On Total Assets: (PBIT/Total 2.55 1.44 5.46 7.04
Asset)*100
Operating Profit Ratio: (Operating 1.77 1.32 7.61 9.11
Profit/Net Sales)*100
Interpretation:
Return On Equity: Over here Lenovo is doing good as the more they get return
from the equity shareholder the more it is good for the company
Return On Total Assets: The higher the ratio is the better it is for the company
because the more the company get return from total asset the more is good for the firm.
Operating Profit Ratio: Higher the ratio is the better it is for the company as it
indicate the portion remain out of every rupee worth of sale after all operating cost
expense have been met.

12. Interpretation of Profitability Analysis
RATIOS LENOVO LENOVO HP HP
(2011) (2010) (2011) (2010)
Net Profit Ratio: (Net Profit After 1.27 0.78 5.56 6.95
Tax/Net Sales)*100
Return on capital employed: 10.22 5.10 16.00 20.00
(PBIT/capital employed)*100
Earnings Per Share: (NPAT/No of 2.84 1.42 1.68 2.08
equity shares issued)
Interpretation:
 Net Profit Ratio: Higher the ratio is the better it is for the company because it
give idea to improve the efficiency, Lenovo is doing good in 2011 compare to 2010
Return on capital employed: The higher the return on capital employed will be
the higher the return on capital the company will get, Lenovo is doing good in 2011
Earnings Per Share: measures the profitability of a firm on per share basis

13. THANK YOU