Go to the Course Resources page within the Course-Specific Resources section. 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.
Complete one paragraph profiling each company's business, including a brief history, location, number of employees, products sold, and relevant information. Reference any websites used for the profiles on the Bibliography tab.
The purpose of this paper is to conduct a comprehensive financial statement analysis of Tootsie Roll Industries and The Hershey Company, utilizing their 2014 financial data. This analysis involves calculating various financial ratios, interpreting these ratios, and comparing the financial health and performance of both companies to determine which presents a more attractive investment opportunity.
To begin, a detailed company profile for each entity must be prepared. Tootsie Roll Industries, founded in 1896 in New York, is now headquartered in Chicago, with around 2,000 employees. It primarily markets its products in the United States, Canada, and Mexico, including brands such as Tootsie Roll, Tootsie Pop, Charms Blow Pop, and Junior Mints. Its 2014 net sales totaled approximately $539.9 million (Tootsie Roll Industries, 2015). Conversely, Hershey Company, established in 1893 and based in Hershey, Pennsylvania, boasts a workforce of 20,800 employees. Hershey's product line includes well-known candies like Hershey’s Kisses, Reese’s, Kit Kat, and Almond Joy. In 2014, Hershey reported net sales of $7.4 billion (Hershey, 2015). These profiles set the foundation for understanding each company's market presence, product offerings, and historical significance.
The core of the analysis involves calculating sixteen financial ratios for both companies, including earnings per share (EPS), current ratio, gross profit margin, net profit margin, inventory turnover, days’ inventory outstanding, accounts receivable turnover, days’ sales outstanding, asset turnover, return on total assets, debt ratio, times-interest-earned ratio, dividend yield, return on equity (ROE), free cash flow, and price-earnings ratio. The calculations must be meticulously documented, with supporting formulas and comments interpreting the significance of each ratio and comparing the companies accordingly. For example, the current ratio evaluates liquidity, with Tootsie Roll having a higher ratio (4.11) than Hershey (1.16), indicating superior short-term liquidity (Harrison, Horngren, & Thomas, 2015).
Interpreting profitability ratios reveals Hershey's superior margins and return on equity, such as a gross margin of 45.0% compared to Tootsie Roll’s 36.9%, and an ROE of 54.0% versus Tootsie Roll’s 9.2%, illustrating Hershey’s more efficient profit generation and shareholder return (Harrison et al., 2015). Despite this, Tootsie Roll exhibits stronger liquidity and solvency ratios, like lower debt levels (24.1% debt ratio vs. 73%), and much higher times-interest-earned (847.7 vs. 16.6), suggesting greater financial safety (Harrison et al., 2015). The inventory and receivables turnover ratios depict Hershey’s more effective asset utilization and collection efficiency.
The analysis extends into examining cash flow data, with Hershey's positive free cash flow at $492.3 million, indicating robust liquidity to fund growth or shareholder returns, compared to Tootsie Roll’s $78.1 million. Market data, including dividend yields (2.6% for Hershey vs. 1.1% for Tootsie Roll) and stock prices, further inform the investment quality of each company (Yahoo Finance, 2015).
Concluding the analysis, a comprehensive comparison suggests that Hershey’s high profitability, strong market position, and substantial free cash flow make it more suitable for growth-oriented investors. Conversely, Tootsie Roll’s conservative financial structure, superior short-term liquidity, and lower debt levels cater to risk-averse investors seeking stability. The final judgment depends on individual investment preferences: Hershey offers higher potential returns but with higher leverage and risk, while Tootsie Roll provides safety and liquidity (Harrison et al., 2015).
References Harrison, W. T., Horngren, C. T., & Thomas, C. W. (2015). Financial Accounting (10th ed.). Pearson Education, Inc.
Hershey Company. (2015). 2014 Annual Report. Retrieved from https://www.thehersheycompany.com/
Tootsie Roll Industries. (2015). 2014 Annual Report. Retrieved from https://www.tootsie.com/ Yahoo Finance. (2015). Hershey & Tootsie Roll stock data. Retrieved December 24, 2015, from https://finance.yahoo.com/