Liquidity Analysis for Investment Analysis

INVESTMENT
ANALYSIS
STUDENT ID:
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LIQUIDITY ANALYSIS
Liquidity is the ability to convert assets into cash at short notice. Liquidity is commonly
measured using the current ratio, quick ratio, and cash ratio. Current ratio is calculated as
Current assets divided by current liabilities. This ratio measures the ability of the firm to pay
off its current liabilities by liquidating its current assets. It indicates the firm's ability to avoid
insolvency in the short run (Damodaran 2015, 98). Quick ratio is also called the acid test
ratio. It has the same denominator as the current ratio, but its numerator includes only cash,
cash equivalents, and receivables. The quick ratio is a better measure of liquidity than the
current ratio for firms whose inventory is not readily convertible into cash. A company's
receivables are less liquid than its holdings of cash and marketable securities. Therefore, in
addition to the quick ratio, analysts also compute a firm's cash ratio, defined as above (Lasher
2017, 143-144).
FIRM AIV
Current ratio
Current assets/current liabilities
YEAR 2014- 1,277,212.00/191,058.00= 6.68
YEAR 2015- 3,454,337.00/197,946.00=17.45
YEAR 2016- 1,149,822.00/149,555.00=7.69
YEAR 2017- 1,567,055.00/249,074.00=6.29
YEAR 2018- 1,011,503.00/231,554.00=4.37
Quick ratio
(Cash+ marketable securities+ receivables)/current liabilities
YEAR 2014- (1,187,000.00+17,778.00+72,434.00)/191,058.00=6.68
YEAR 2015- (3,353,509.00+30,524.00+69,304.00)/197,946.00=17.45
YEAR 2016- (1,054,846.00+10,305.00+84,671.00)/149,555.00=7.69
YEAR 2017- (1,475,834.00+3,354.00+87,867.00)/249,074.00=6.29
YEAR 2018- (909,609.00+7,303.00+94,590.00)/231,554.00=4.37
Cash ratio
(Cash+ marketable securities)/current liabilities
YEAR 2014- (1,187,000.00+72,434.00)/191,058.00=6.59
YEAR 2015- (3,353,509.00+69,304.00)/197,946.00=17.29

YEAR 2016- (1,054,846.00+84,671.00)/149,555.00=7.62
YEAR 2017- (1,475,834.00+87,867.00)/249,074.00=6.28
YEAR 2018- (909,609.00+94,590.00)/231,554.00=4.34
FIRM BRL
Current ratio
Current assets/current liabilities
YEAR 2014- 13,669,733.00/15,314,561.00=0.89
YEAR 2015- 9,428,014.00/14,590,047.00=0.65
YEAR 2016- 11,206,025.00/8,535,608.00=1.31
YEAR 2017- 37,208,571.00/31,744,761.00=1.17
YEAR 2018- 27,300,742.00/9,215,812.00=2.96
Quick ratio
(Cash+ marketable securities+ receivables)/current liabilities
YEAR 2014- (8,228,789.00+3,963,386.00+72,483.00)/15,314,561.00=0.81
YEAR 2015- (4,635,204.00+3,360,297.00+82,344.00)/14,590,047.00=0.57
YEAR 2016- (5,675,469.00+2,430,164.00+217,370.00)/8,535,608.00=1.10
YEAR 2017- (31,142,857.00+2,430,164.00+34,285)/31,744,761.00=1.11
YEAR 2018- (18,507,750.00+2,579,748.00+0)/9,215,812.00=2.84
Cash ratio
(Cash+ marketable securities)/current liabilities
YEAR 2014- (8,228,789.00+72,483.00)/15,314,561.00=0.54
YEAR 2015- (4,635,204.00+82,344.00)/14,590,047.00=0.32
YEAR 2016- (5,675,469.00+217,370.00)/8,535,608.00=0.68
YEAR 2017- (31,142,857.00+34,285.00)/31,744,761.00=0.98
YEAR 2018- (18,507,750.00)/9,215,812.00=2.01
Comparison between both firms
The comparison of the liquidity ratios for both the firms clearly highlight that AIV is in a
superior position in comparison to BRL. This is attributed to the liquidity ratios being
significantly greater than AIV than BRL even though both companies belong to the same
sector. However, a key difference between both the companies is that during the last five