Title Pagego To Doc Sharing For The Detailed Course Project Instructio
Go to Doc Sharing for the detailed Course Project instructions and grading rubric. Complete your Title page on this tab. Please include your name, the course, the date, your instructor's name, and the title for the project. Profiles Complete one paragraph profiling each company's business including information, such as a brief history, where they are located, number of employees, the products they sell, etc. Please reference any websites you used for the Profiles on the Bibliography tab.
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 2011 net product sales of $528 million.
Hershey Company was founded by Milton S. Hershey in 1893 and is headquartered in Hershey, Pennsylvania. According to Yahoo Finance, Hershey had 12,100 full-time employees. Hershey is famous for the Hershey Bar, Hershey's Kisses, Hershey's Bliss, Reese's, Twizzlers, Almond Joy, Kit Kat, and Ice Breakers. Hershey had net product sales of $6 billion for 2011.
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. The comparison of the ratios is an important part of the project. Briefly explain what each ratio indicates, whether a higher or lower ratio is better, and compare the two companies based on these ratios. Each ratio includes a comparative analysis, supporting your interpretation with the numerical data from the ratios.
Indicate whether a higher or lower ratio is more favorable. For example, a higher current ratio suggests better liquidity, whereas a lower inventory turnover may indicate slower inventory management. Use these insights to compare each company across liquidity, solvency, and profitability ratios, noting where one significantly outperforms the other or where performance is comparable.
Finally, provide a summary of which company appears to be the better investment based on the ratio analysis, supporting your conclusion with the derived insights. Consider which ratios reflect financial safety (liquidity and solvency) versus company growth and profitability when forming your judgment.
Paper For Above instruction
The comprehensive financial health of companies can be thoroughly analyzed through ratio analysis, providing vital insights into their liquidity, solvency, and profitability. This paper compares Tootsie Roll Industries and The Hershey Company utilizing key financial ratios derived from their respective 2011 financial statements. The analysis aims to inform which of these iconic confectionery firms presents a more attractive investment opportunity based on their financial positions and performance metrics.
Introduction
Financial ratios are essential tools used by investors, creditors, and management to assess a company's operational efficiency, financial stability, and profitability. The ratios examined in this comparison—such as liquidity ratios, efficiency ratios, and profitability metrics—offer a snapshot of each company's financial condition during 2011. While Tootsie Roll, with its long history dating back to 1896, operates mainly in North America with a diverse product line, Hershey, founded in 1893, is a global leader with a strong brand recognition worldwide. Evaluating their financial ratios enables us to understand which company is better positioned for safety and growth.
Liquidity Ratios
Liquidity ratios assess a company’s ability to meet its short-term obligations. The current ratio, which compares current assets to current liabilities, is a primary indicator. Tootsie Roll's current ratio of 3.64 indicates a robust liquidity position, meaning it has $3.64 in current assets for every dollar of current liabilities. Hershey's current ratio of 1.74, while lower, still suggests a reasonable capacity to cover short-term obligations. Additionally, the current cash debt coverage ratio, which measures cash flow adequacy, shows Tootsie Roll's strength with a ratio of 0.86 versus Hershey’s 0.47, signifying better liquidity management at Tootsie Roll.
Solvency Ratios
Solvency ratios evaluate a company's long-term financial stability and its capacity to service debt. The debt to total assets ratio is markedly lower for Tootsie Roll at 22.4%, compared to Hershey's 80.2%. This indicates Tootsie Roll relies less on debt financing, thereby implying lower financial risk. The times interest earned ratio further validates this, with Tootsie Roll able to cover its interest expenses 504 times, versus Hershey's 11 times. Such a disparity underlines Tootsie Roll’s greater ability to meet interest
obligations, implying superior solvency.
Profitability Ratios
Profitability ratios demonstrate how effectively a company generates profit. Hershey outperforms Tootsie Roll significantly in this area, with a gross profit rate of 41.6% versus 31.2%, and a profit margin ratio of 10.3% compared to 8.3%. Moreover, the return on assets ratio highlights this advantage, with Hershey generating a 14.5% return, whereas Tootsie Roll's return is only 5.1%. The return on common stockholders' equity also favors Hershey with 69.5%, indicating higher efficiency in generating shareholder value. These ratios suggest Hershey's stronger profitability and potential for higher growth.
Efficiency and Market Ratios
Efficiency ratios such as inventory turnover show Hershey's slightly better inventory management, with 6.0 rotations per year, compared to Tootsie Roll's 5.7. Receivable turnover also favors Hershey, with a ratio of 15.4 versus 13.4, signaling more effective collection practices. The price/earnings (P/E) ratio, a market-based valuation metric, favors Tootsie Roll at 31, signaling higher growth expectations by the market compared to Hershey's P/E of 22. However, higher profitability does not necessarily mean a better investment for conservative investors, especially considering risk factors like debt levels.
Summary and Conclusion
Based on comprehensive ratio analysis, Tootsie Roll demonstrates stronger liquidity and solvency, evidenced by high current ratios, low debt levels, and exceptional interest coverage, implying it is a safer investment for risk-averse investors. Conversely, Hershey exhibits superior profitability, higher gross margins, and more efficient asset utilization, making it more attractive for growth-oriented investors seeking higher returns and shareholder value enhancement. Considering both perspectives, Tootsie Roll offers stability and financial safety, while Hershey provides growth potential through higher profitability. In conclusion, the decision on the better investment depends on investor priorities. For conservative considerations emphasizing safety, Tootsie Roll appears preferable. For those seeking growth and higher profitability, Hershey represents a compelling choice. Overall, both companies are financially healthy, but their strategic strengths cater to different investor profiles.
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2013).
Financial accounting: Tools for business decision making (7th ed.). John Wiley & Sons, Inc.
Yahoo Finance. (2013). Tootsie Roll Industries. Retrieved from https://finance.yahoo.com/quote/TRY Yahoo Finance. (2013). Hershey Company. Retrieved from https://finance.yahoo.com/quote/HSY BigCharts.com. (2013). Hershey Stock Quotes. Retrieved August 13, 2013, from https://www.bigcharts.com BigCharts.com. (2013). Tootsie Roll Stock Quotes. Retrieved August 13, 2013, from https://www.bigcharts.com
Textbook Appendices and Chapters. (2013). Chapter 13, Financial Ratios and Comparison. In Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2013).
Financial accounting: Tools for business decision making (7th ed.).
