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Tootsie Roll Industries began in a small candy store in New York in 1896.
Tootsie Roll is now headquartered in Chicago with operations throughout
North America and with distribution channels in over 75 countries. According
to Yahoo Finance, Tootsie Roll has 2,200 full-time employees. Tootsie Roll
sells the following branded candy: Tootsie Roll, Tootsie Roll Pop, Charms
Blow Pop, Mason Dots, Andes, Sugar Daddy, Charleston Chew, Double
Bubble, Razzles, Caramel Apple Pop, and Junior Mints. Tootsie Roll had 2012
net product sales of $549.9 million.
Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab and also include your commentary.
The financial statements used to calculate these ratios are available in Appendix A and Appendix B of your textbook.
Interpretation and comparison between the two companies' ratios (reading
the Appendix of Chapter 13 will help you prepare the commentary).
Tootsie Roll
Hershey's
The comparison of the ratios is an important part of the project. A good approach is to briefly explain
what the ratio tells us. Indicate whether a higher or lower ratio is better. Then compare the two
companies on this basis. Remembereach ratio below requires a comparison.
Current Ratio
0.89
3.01
Current assets
Current liabilities
$197,241
$60,765
3.25
$2,113,485
$1,471,110
1.44
Gross profit
Net Sales
$183,321
$549,870
33.3%
$2,859,882
$6,644,252
43.0%
Net Income
Net Sales
$52,004
$549,870
9.5%
$660,931
$6,644,252
9.9%
Inventory Turnover
$365,573
$67,072
5.5
times
$3,784,370
$641,108
365 days
Inventory turnover
365
5.5
67
days
365
5.9
62
days
$549,870
$42,002
13.1
$6,644,252
$430,441
15.4
365
Receivable Turnover Ratio
365
13.1
27.9
days
365
15.4
23.6
days
Net Sales
Average Total Assets
$549,870
$852,297
0.65
$6,644,252
$4,580,967
1.45
$52,004
$852,297
6.1%
$660,931
$4,580,967
14.4%
Total Liabilities
Total Assets
$196,922
$846,737
23.3%
$3,706,466
$4,412,199
84.0%
$74,301
$137
542.3
1,111,148
95,569
11.6
$0.32
$31.72
1.0%
$1.94
$98.85
2.0%
$52,431
$657,875
8.0%
$660,931
$964,658
68.5%
Asset turnover
Debt Ratio
Times-Interest-Earned Ratio
Dividend Yield
12/31/2012
EPS as of 12/31/2012
$93,033
$25.92
$0.89
$93,033
29
5.9
times
$836,100
836,100
$72.22
$3.01
24
You all get the chance to play the role of financial analyst below. The summary should be a
comparison of each company's performance for each major category of ratios (liquidity,
solvency, and profitability) listed below. Focus on major differences as you compare each
company's performance. A nice way to conclude is to state which company you feel is the
better investment and why.
Measuring Ability to Pay Current Liabilities: Tootsie Roll has the advantage for the current ratio. Tootsie Roll has
$3.25 in current assets for every dollar in current liabilities while Hershey has only $1.44 in current assets for
every dollar in current liabilities.
Measuring Turnover: Hershey has the advantage for the inventory turnover and accounts receivable turnover
ratios. Hershey turns over their inventory 5.9 times to Tootsie Roll's 5.5 times and Hershey turns over their
accounts receivable 15.4 times to Tootsie Roll's 13.1 times.
Measuring Leverage- Overall Ability to Pay Debts: Tootsie Roll has significantly less debt than Hershey as
evidenced by Tootsie Roll's 23% debt to asset ratio as compared to Hershey's 84% debt to asset ratio. Tootsie
Roll can cover their interest expense 504 times with income before interest and taxes while Hershey can only
cover their interest expense 11 times with their income before interest and taxes. Tootsie Roll has the advantage
for each of these ratios.
Measuring Profitability: Hershey has the advantage for each of the profitability ratios. Hershey has a significant
edge in return on common stockholders' equity with a 68.5% return on common stockholders' equity as
compared to Tootsie Roll's 8.0% return on common stockholders' equity. Hershey also has a higher gross profit
rate (43.0% to 33.3%) and higher profit margin ratio (9.9% to 9.5%).
Analyzing Stock as an Investment: Hershey returns a 2% dividend yield to their investors while Tootsie Roll's
yield is 1%. Hershey has positive free cash flow of $836.1 million while Tootsie Roll has positive free cash flow of
$93 million. Free cash flow can be used to undertake acquisitions, pay additional dividends, pay down debt, or
buy back stock.
Conclusion: Tootsie Roll is the safer investment when you examine their ability to pay current liabilities and
overall liabilities; however, Hershey has the edge for all of the profitability ratios. For the conservative investor,
Tootsie Roll looks like the way to go because of their strong current and times-interest-earned ratios. For the
growth-oriented investor, Hershey is the way to go because of their stronger profitability ratios and large amount
of free cash flow.
The Appendices of your textbook and any information you use to profile the companies should be cited as a reference
Big Charts for Hershey (2013). Retrieved October 29, 2013 from http://bigcharts.marketwatch.com/historical/default.asp?
symb=HSY&closeDate=12%2F31%2F2012&x=0&y=0
Big Charts for Tootsie Roll (2013). Retrieved October 29, 2013 from http://bigcharts.marketwatch.com/historical/default.asp?
symb=TR&closeDate=12%2F31%2F12&x=12&y=19
Harrison, W.T., Horngrenm C.T. & Thomas, C.W. (2013). Financial Accounting, 9th ed. Upper Saddle River, NJ: Pearson Educa
Hershey's 2012 Annual Report (2013). Retrieved October 29, 2013 from
http://www.thehersheycompany.com/assets/pdfs/hersheycompany/TheHersheyCompany_10K_20130222.pdf
HSY Profile (2013). Retrieved October 31, 2013 from http://finance.yahoo.com/q/pr?s=HSY+Profile
HSY Stock Price (2013). Retrieved November 1, 2013 from http://finance.yahoo.com/q?s=hsy&ql=1
Tootsie Roll Industries 2012 Annual Report (2013). Retrieved October 29, 2013 from http://www.tootsie.com/financial/fin_247.pd
TR Profile (2013). Retrieved October 31, 2013 from http://finance.yahoo.com/q/pr?s=TR+Profile
TR Stock Price (2013). Retrieved November 1, 2013 from http://finance.yahoo.com/q?s=TR&ql=1