Liquidity Ratio: Analysis and Comparison of Ubisoft and Ainsworth

Liquidity ratio
Liquidity ratio computes the business capacity to meet the obligations of short term and other
financial commitments as and when they become due. The current ratio is even termed as the
working capital ratio and measures the solvency or liquidity of the business. It projects
whether the business is capable of meeting the obligations (Porter & Norton, 2014). The
standard current ratio is 2:1 meaning that the company has $2 of current assets for every $1
of current liabilities. The standard might not be a correct one for every business however; the
business should try to attain a current ratio of more than 1:1 and closer to the standard ratio of
2:1. A higher current ratio is always desirable as it projects the potential of the company in
meeting the obligations (Parrino, Kidwell & Bates, 2012). However, a low current ratio puts
pressure on the current assets and indicates the deficit of current assets.
Current ratio
When it comes to Ubisoft, it can be commented that the current ratio of the company has
moved ups and downs in the past 5 years, however, the ratio remained above 1 and close to 2:
1. It indicates that the company has sufficient liquidity and will be able to meet the short term
obligations. The current assets of the company have shown an increasing trend in the past 5
years that will help the company in meeting the obligations (Ubisoft, 2018).
In comparison with the competitor Ainsworth, it can be commented that the company has a
very high current ratio. Such a high level of current ratio is not a good sign for the company
because it indicates that the cash position of the company is locked up in inventories
(Ainworth, 2018). The same cash could be invested and utilized and return can be generated
(Kieso, Weygandt, Warfield, Young & Wiecek, 2010).
Hence, if we compare the ratio of Ubisoft and Ainsworth, it can be commented that the ratio
pattern of Ubisoft is better placed and effective as it is in the desirable range and the company
can honor the obligations. Moreover, heavy funds are not locked up in current assets.
Figure 1 Trend - Current ratio
1

Liquidity ratio
2018 2017 2016 2015 2014
0
1
2
3
4
5
6
Current ratio Unisoft
Current ratio Ainsworth
Quick ratio
The quick ratio is a better version of the current ratio because it excludes inventories. A
higher quick ratio stresses that the company has higher liquidity. The standard ratio is 1:1 that
means the quick assets can meet the obligations without selling off the inventories (Porter &
Norton, 2014). The Best part of this ratio is that the inventories are excluded and hence,
without the inventories the interpretation is done meaning inventories do not count in the
computation.
When it comes to Ubisoft, the inventories are consistent and that the ratio of the company
provides a strong statement that the business has a formidable quick ratio and can meet the
obligations. At present, the ratio stands at 1.64 times meaning that quick assets are in excess
(Ubisoft, 2018).
When it come to Ainsworth, it can be seen that the quick ratio is very high that clearly
interprets the fact that the business will lose the prospect of growth as a heavy volume of
funds is locked up in the current assets.
Figure 2 Trend - Quick ratio
2