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Tootsie Roll and Hershey - Financial Ratios

Using the financial statements for Tootsie Roll and Hershey located in Appendix A and B, respectively, you will calculate and compare the financial ratios listed below for the year ended in 2004.In Word, write a two-page analysis evaluating and comparing Hershey's and Tootsie Roll's overall liquidity, solvency, and profitability. In your two-page analysis, assume you are considering investing in one of these companies. The report should be organized into sections and paragraphs with appropriate headings to explain which company you would choose based on your analysis. Support your analysis with the numbers that you presented in your worksheet. Please upload your two files (one in Word and one in Excel).

Financial Ratio Calculations*
A. Liquidity Ratio

Current ratio
Working Capital
Current Cash Debt Coverage ratio
Receivables Turnover Ratio
Average Collection Period (Average Age of Receivables)
Inventory Turnover Ratio
Days in Inventory (Average Age of Inventory)
B. Solvency Ratios

Debt-to-Total Assets ratio
Times Interest Earned (Interest Coverage) ratio
Cash Debt Coverage ratio
Free Cash Flow
C. Profitability Ratios

Gross Profit Rate
Profit Margin Ratio
Asset Turnover Ratio
Return-on-Assets (ROA)
Earnings per Share
Payout ratio
*Note: If you are unable to locate an item needed for a ratio, make an assumption and make sure you note your assumption in your work.


Solution Preview

Please see the attached files

1. Liquidity Analysis -

Hershey Tootsie
A. Liquidity Ratio
1. Current Ratio 0.92 2.34
2. Working Capital (102,842) 110,376
3. Current Cash Debt Coverage Ratio 0.62 0.93
4. Receivables Turnover Ratio 10.85 18.04
5. Average Collection Period 33.64 20.24
6. Inventory Turnover Ratio 5.10 4.66
7. Days in Inventory 71.52 78.27

The liquidity of Tootsie is much better than that of Hershey. The current ratio is 2.34 as compared to 0.92 for Hershey. This implies that Tootsie has $2.34 in current assets to pay for each $ of current liability while Hershey has only $0.92 in current assets and has a negative working capital since the current liabilities are higher ...

Solution Summary

The solution compares the performance of Tootsie Roll and Hershey using financial ratios