FBL5030 Assignment: Liquidity Ratio Analysis of Ubisoft

This report provides a detailed analysis of Ubisoft's liquidity ratios, focusing on the current and quick ratios, and compares them to the competitor Ainsworth. The analysis covers the period from 2014 to 2018, highlighting the trends in both companies' financial performance. The current ratio, which measures a company's ability to meet short-term obligations, is examined for both Ubisoft and Ainsworth, with Ubisoft demonstrating a more desirable and stable ratio. The quick ratio, excluding inventories, is also analyzed, showing Ubisoft's strong position compared to Ainsworth, indicating a better ability to meet immediate liabilities. The report concludes that Ubisoft effectively manages its cash position, resulting in a strong liquidity position compared to Ainsworth, which has a significant amount of funds locked up in current assets.

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
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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
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Liquidity ratio
2018 2017 2016 2015 2014
0
0.5
1
1.5
2
2.5
3
3.5
4
Quick ratio Ubisoft
Quick ratio Ainsworth
Hence, in comparison with Ubisoft, it can be clearly mentioned that both the business has
high current and quick ratio indicating that the business will be able to meet the short term
obligations. However, the standard ratio is better maintained by the company Ubisoft in both
the current and quick ratio. Therefore, in terms of competition Ubisoft ranks higher because it
has the desired ratio together with the accurate level of current assets. From the overall study,
it can be commented that the management has used the cash position of the company in an
effective manner thereby it has a strong liquidity ratio together with a great balance of cash
position. In all perspective, it ranks higher than the competitor Ainsworth that has a huge
volume of cash locked up in the current assets. In this case, the company is losing interest and
having stress on the financial scenario of the company while Ubisoft is operating in a smooth
manner.
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Liquidity ratio
References
Ainworth. (2018). Ainsworth 2018 annual report and accounts 2018. Retrieved from:
https://www.agtslots.com.au/financialreport
Kieso, D., Weygandt, J., Warfield, T; Young, N. & Wiecek, I . (2010). Intermediate
accounting. Toronto: John Wiley & Sons Canada.
Parrino, R, Kidwell, D. and Bates, T. (2012) Fundamentals of corporate finance. Hoboken,
NJ: Wiley
Porter, G. and Norton, C. (2014) Financial Accounting: The Impact on Decision Maker.
Texas: Cengage Learning
Ubisoft. (2018). Ubisoft 2018 annual report and accounts 2018. Retrieved from:
https://www.ubisoft.com/en-US/company/investor_center/annual_report.aspx
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