FI504 ACCOUNTING AND FINANCE PROJECT PAPER

FINANCIAL STATEMENT ANALYSIS OF

HERSHEY CORP AND TOOTSIE ROLL INDUSTRIES

1

FI504: ACCOUNTING AND FINANCE

Instructor: Michael Townsley

Student Name: Supriya Ganaparthi

Contact Information: 913 Well Spring Road,

Apt 26 D, Midvale, Utah-84047.

October16, 2009

2

INDEX

SL.NO DESCRIPTIONS OF THE CONTENTS PAGE NUMBERS

1 ABSTRACT 4

2 HISTORY OF THE COMPANIES 5-7

3 CALCULATION OF THE FINANCIAL

RATIOS OF HERSHEY CORP AND

TOOTSIE ROLL INDUSTRIES

8-16

4 EVALUATION OF THE FINANCIAL

RATIOS OF HERSHEY CORP AND

TOOTSIE ROLL INDUSTRIES

17-28

5 EVALUATION REPORT 29-31

6 CONCLUSION 32-33

7 BIBILIOGRAPHY 34

3

ABSTRACT

The purpose of this project is to know how and why an investor should study analyze the financial

reports of the companies before investing. This project work has been undertaken the prospect of

investors view point. This sample piece of work is done on the two big companies in the industry of

confectionaries; they are the Tootsie Rolls Industries and Hershey’s Corp. This project helps the

graduate students understand and analyze the market conditions in the business world.

I think that I have incorporated each and every detail necessary to learn and accomplish the above

mentioned work from the investor point of view.

4

HISTORY OF THE COMPANIES

HISTORY OF HERSHEY’S

Hershey’s company was established in the year 1984. And from then it started its journey in the

field of confectionaries, the company started its first product with the manufacturing of candies.

MILTON is the founder of the Hershey’s company. In the year 1991 they started manufacturing

chocolates fortified with caramel flavor. One of the revolutionary developments by the company

was the production of milk and milk products. Hershey’s reached top position by step-by-step

improvements they brought in their products and within the company. This proper planning was the

reason behind them to achieve the success they earned in today’s market along with earning more

profits and were able to decrease per unit cost to dollar value.

The company believes in “a palatable confection and a most nourishing food.” And this is its

slogan. It struggled to the extreme limit to keep up with its slogan by maintain high quality with low

cost. Success of Hershey’s led the management to think, and in turn they improved the production

facilities by constructing factory to manage each production unit, with tons of production from time

to time.

As we all know that ‘planning’ is a very important tool for establishing and marketing a product.

History shows us various examples or situation where top organizations collapsed due to improper

planning. And a lot of resources were wasted in the due process of collapsing. But this was not the

situation with Hershey’s, right from the beginning the company planned and organized each and

every step in an appropriate manner. For example, I can support my comment on the Hershey’s

method of planning and organizing with an appropriate example, the former Director of Hershey’s

company Mr. Milton selected a place which is Close to the port of New York and constructed a

5

factory on it. The reason behind it is that the sugar and the cocoa beans which were used in the

production of chocolates were imported, and these supplies were unloaded in the port New York.

And the place where the factory was built was very much surrounded by dairy farms, hence the

milk required, along with the imported products were easily transported to the main site thereby

reducing the transportation charges and saving a lot of time. And this plan was reinforced with the

supply of cheap and local labor. This timely planning made the company to achieve success more

easily. For every business ‘cost cut down’ is very important, as there are numerous advantages if a

company can cut down its cost from time to time.

In the year 1928 H.B.Harry Reese Candy Company started its new product which was a chocolate-

covered peanut butter cup. The chocolate required for the REESE’S penny cups was supplied by the

Hershey’s chocolate. This developed a strong relationship between both the companies. As a result

of this friendship, seven years after the death of Reese’s, the Hershey’s took over the H.B. Reese

Candy Company in the year 1956 and turned out into Hershey Chocolate Corp.

HISTORY OF TOOTSIE’S

Tootsie Roll industries is well known as America’s candy house. It was established in the year 1896

in the city of New York. Later the company established its head office in Chicago, which now has

become one of the country’s largest candy companies. The company’s distribution channels are

expanded over 75 countries in the world. It is America’s favorite candy house; this made the

company to capture the highest market share in the industry of confectionaries of America. It also

contributes a share in the country’s Gross Profit Ratio. It started its journey with a single product in

the world of chocolates and confectionaries, and today it has accommodated several products into

its huge list of products considering the tastes of the customers.

The following are the name of its products,

6

Tootsie Roll, Tootsie Pop, Charms Blow Pop, Mason Dots, Andes, Sugar Daddy, Charleston Chew,

Dabble Bubble, Razzes, Caramel Apple Pop, Junior Mints, Celle’s Chocolate-Covered Cherries,

and Nike-L-Nip.

Every new flavor manufactured by the company is interlinked with human emotions. That is they

name the flavors suitable for an occasion. For example, birthday occasion, wedding ceremony,

candy’s for lovers, candy’s for small children etc,.

This is the way of creating a marketing strategy for advertising its products. With this it has

occupied a highest market in a short period of time.

This company managed its income and expenses right from its origination to till date. It managed

all its expenses and income in its balance sheet though they have up and downs during the year

2006 and 2007 and so on.

Proper planning and implementation of policies is the main reason behind Tootsie Roll’s success in

the industry of chocolates. It has a history of more than 100 years and still has a very long to go.

7

Calculation and Evaluation of Tootsie Rolls and Hershey Corp Financial Ratios

Calculation of Tootsie Rolls Financial Ratios

LIQUIDITY RATIOS

I. Current ratio = current assets/ current liabilities

2007 = 199.776/311,262 = 3.445: 1

2006 = 190917/62211 =3.06:1

2005 = 246596/113656 =2.16:1

II. Current cash debt coverage ratio = Cash provided by operations/average current liabilities

2007 = 90064/ (57972+62211+113656)/3

= 90064/233839/3

= 90064/77946.33

= 1.155 times

2006 = 55656/77946.33

=0.71 Times

2005 =82524/77946.33

= 1.05 times

III. Inventory turnover ratio = cost of gods sold/average inventory

2007 =327695/65529+72650)

=327695/138179

= 2.37 times

2006 = 311267/72650+66744

=311267/69697

=4.46 times

2005 = 299583/66744+65529

8

=299583/66136 =4.29 times

IV. Days in inventory = 365/inventory turnover ratio

2007 = 365/2.37

= 154.0 days

2006 =365/4.46

=154 days

2005 =365/4.29

=85.1 days

V. Receivable turnover ratio = net credit sales/average net receivables

2007 =492742/32371

=15.22 times

2006 = 495990/35075

= 14.14 times

2005 = 487789/30856

=15.80 times

VI. Average collection period = 365/receivable turnover ratio

2007 = 365/15.22

=23.98 = 24 days

2006 = 365/14.14

= 25.8 days

2005 =365/15.80

=23.10 days

SOLVENCY RATIOS

I. Debt to total assets ratio = Total liabilities/Total assets

2007 =174495/ 812725

=21%

2006 = 160958/791639

=20%

9

2005 = 196291/813696=24%

II .Cash debt coverage ratio = cash provided by operations/average total liabilities

2007 = 90064/ (174495+160958+196291)/3

=90064/531744/3

=90064/177248

=0.50 times

2006 = 55656/177248

=0.31 times

2005 = 82524/177248

=0.46 times

III .Times interest earned ratio = net income+ Interest expense+ tax expense/interest expense

2007 = 51625+537+11343/537

=63505/537

=118.25 times

2006 = 65919+733+29780/733

=96432/733

= 131.55 times

2005 = 77227+2537+26947/2537

=106711/2537

=42.06 times

IV. Free cash flow =cash provided by operations-capital expenses-cash dividends

2007 = 90064-(-14767)-17542

=87289$ per share

2006 = 55656+39207- 17264

=77599$ per share

2005 =82524+14690-15132

= 82082 $ per share

10

PROFITABILITY RATIOS

I .Earnings per share = net income-preferred stock dividends/ average common shares outstanding.

2007 =51625-(-46685)/54980 = 1.788$ per share2006 =65919+43694/46640 =2.35$ per share2005 =77227+46640/56732 = 2.18$ per share

II .Price earnings per share = stock price per share/earnings per share

2007 = 0.94/1.788 =0.525; 12006 =1.18/2.35 =0.50; 12005 =1.36/2.18 =0.623; 1

III .Gross profit ratio = gross profit/ net sales

2007 =168673/492742 =34.2%2006 =188561/495990 =38%2005 =190730/487789 =39.1%

IV .Profit margin ratio = net income /net sales

2007 =51625/492742 =10%2006 = 65919/495990 =13%2005 =77227/487789 =15.8%

V .Return on Assets =Net income/ average total assets

2007 =51625/802182 =64%2006 =65919/802667.5 =82%2005 =77227/813210.5 =94%

VI .Asset turnover ratio = net sales /average total sales

2007 =492742/802182 =61%

11

2006 =495990/802667.5 =62%2005 = 487789/813210.5 = 60%

VII. Payout ratio =cash dividends declared on common stock/net income

2007 =17421/51625

=0.33

2006 =17170/65919

=0.26

2005 =15406/77227

=0.20

VIII .Return on common stockholder’s equity ratio = Net income-preferred stock dividends/average

Common stock Holders equity

2007 =51625-(-46685)/27300

=3.60%

2006 =65919-(-43694)/30694

=3.57%

2005 =77227-(46640)/17248

=1.77%

12

Calculation of Hershey Corp’s Financial Ratios

LIQUIDITY RATIOS

I .Current ratio = current assets/ current liabilities

2007 = 1,426,574/1,618,770

=0.88: 1

2006 = 1,417,812/1,453,538

=0.97: 1

2005 = 1,376,403/1,490,382

=0.92: 1

II. Current cash debt coverage ratio = Cash provided by operations/average current liabilities

2007 =778,835/455880

=1.708

2006 =723,193/455880

=1.58; 1

2005 =461,762/455880

=1.01; 1

III .Inventory turnover ratio = cost of gods sold/average inventory

2007 = 3,315.10/1249005

= 2.65 times

2006 =3,076.70/1283730

=2.39 times

2005 =2,956.70/1235095

= 2.39 times

IV .Days in inventory = 365/inventory turnover ratio

2007 = 365/2.65

=137.7 days

2006 =365/2.39

=152.7 days

13

2005 = 365/2.39

= 153 days

V .Receivable turnover ratio = net credit sales/average net receivables

2007 = 4,946.70/504979

=0.97 times

2006 = 4,944.20/514896

=0.01times

2005 =4,819.80/497202

= 0.096 times

VI .Average collection period = 365/receivable turnover ratio

2007 =365/1.97

=185 days

2006 =365/0.01

=365 days

2005 =365/0.096

=380 days

SOLVENCY RATIOS

I .Debt to total assets ratio = Total liabilities/Total assets

2007 = 3623593/4247113

= 0.85; 1

2006 =3474142/4157565

=0.83:1

2005 =3246319/4262699

=0.76:1

II .Cash debt coverage ratio = cash provided by operations/average total liabilities

2007 =778835/3548867.5 =0.2192006 =723193/3360230.5

=0.2152005 =461762/3434956 =0.134

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III .Times interest earned ratio = net income+ Interest expense+ tax expense/interest expense

2006 =214,154+118.60+9526/118.60 =1887

2006 =559,061+116.10+16323/116.10 =575500.1/116.10 =4956.932005 =488,547+88.00+14263/88.00 =5714.7

IV .Free cash flow =cash provided by operations-capital expenses-cash dividends

2007 =778835-(-189698)-252263

=716270$

2006 =723193-(-183496)-235129

=671560$

2005 =462762-(-181069)-221235

=422596$

PROFITABILITY RATIOS

I .Earnings per share = net income-preferred stock dividends/ average common shares Outstanding

2007 =214154- 1.1350/592,922 =0.36$2006 =559061-1.030/683,423 =0.81$2005 =488547-.9300/1,016,380 =0.48

II .Price earnings per share=stock price per share/earnings per share

2007 =0.96/0.36 =2.67 per share

2006 =2.44/0.81

=3.01 per share

2005 =2.05/0.48

= 4.27 per share

III .Gross profit ratio = gross profit/ net sales

2007 = 1,631.60/4,946.70 =33%2006 =1,867.50/4,944.20

15

=37%2005 =1,863.10/4,819.80 =38%

VI .Profit margin ratio = net income /net sales

2007 = 214.2/4946.7 =0.04%

2006 =559.1/4944.2 = 0.11%2005 =488.5/4819.8 =0.10%

V .Return on Assets =Net income/ average total assets

2007 =214.2/(1426574+4247113)/2 =214.2/1410269.5 =0.05% 2006 =559.1/(1417812+4157565)/2 =559.1/2787688.5 =0.02% 2005 =488.5/(1376403+4262699)/2 =488.5/2819551 =0.017%

VI. Payout ratio = cash dividends declared on common stock/net income

2007 =129189/214.5

=60.22006 =97141/559.1 = 17.372005 =67183/488.5 =13.75

VII. Return on common stockholder’s equity ratio = Net income-preferred stock dividends/average

Common stock Holders equity

2007 =214.5- 600185/592922

=1.01%2006 =559.1- 648820 /683423 =0.95%2005 =488.5- 634910 /1016380 =0.62%

16

Evaluation of Tootsie Roll and Hershey Corp’s Financial Ratios

LIQUIDITY RATIOS

1 .CURRENT RATIO

TOOTS

IE

HERSHE

Y

2007 3.445 0.88

2006 3.06 0.97

2005 2.16 0.92

2007 2006 20050

0.51

1.52

2.53

3.5

TOOTSIEHERSHEY

Explanation – From the above graph we can analyze that the currents assets are very high in

Tootsie Roll’s company rather than Hershey’s. And we can clearly see that how Tootsie Company

managed its CA over CL from 2005 to 2007 which means planning is very good.

2. CURRENT CASH DEBT COVERAGE RATIO

TOOTS

IE

HERSHE

Y

2007 1.115 1.708

2006 0.71 1.58

2005 1.05 1.01

17

TOOTSIE HERSHEY0

0.20.40.60.8

11.21.41.61.8

200720062005

Explanation – Cash provided by operating activities of Hershey’s is very high, but it is clearly seen

from the graph that its current liabilities are also high. This is the reason behind why the Hershey’s

company is not in a position of maintaining a sequential increase in its profit ratios without drastic

ups and downs in its graph.

3. ACCOUNTS RECEIVABLE TURNOVER

TOOTS

IE

HERSHE

Y

2007 15.22 0.97

2006 14.14 0.01

2005 15.8 0.096

2007 2006 200502468

10121416

TOOTSIEHERSHEYSeries3

Explanation – Cost of goods sold explains weather a company is doing good or not, if its sales

increasing then they are in the path of earning high profits, we can seen from the graph above that

the sometimes Hershey made a very high sales rates but on the other hand its expenses are also

high, this resulted with loss in the year 2006. Tootsie is far more ahead of Hershey in its

receivables, even though it saw a slight loss in the year 2006.

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4. AVERAGE COLLECTION PERIOD

TOOTS

IE

HERSHE

Y

2007 24 185

2006 25.8 365

2005 23.1 380

2007 2006 20050

50100150200250300350400

TOOTSIEHERSHEY

Explanation – Manufacturing of a product is very important along with the time taken for the

production. As the companies top and best in the competition do not invest so much in time for

production. If a company is taking a long time for manufacturing of a product then it is clearly

known that it is going to lose its market along with increased expenditure and wasting of resources.

For example, Tootsie manages its total average collection period for 23 days but on the other side

Hershey’s due to lack of proper planning it is taking for about 380 days for the production which is

very high and due to which it’s average collection period of its investments is very high, and this a

loss for the company. And the investors would not be interested in such a company because they

sometimes need to wait for long periods for the returns on their investments.

5. INVENTORY TURNOVER

TOOTS

IE

HERSHE

Y

2007 2.37 2.65

2006 4.46 2.39

2005 4.29 2.39

19

2007 2006 20050

0.51

1.52

2.53

3.54

4.5

TOOTSIEHERSHEY

Explanation: One among the important financial asset management ratios for a company is the

‘inventory turnover ratio’. It is important as it gives some financial information to the owner of the

company. It shows how efficiently a company is able to manage the selling of its inventory. A high

inventory turnover ratio tells that the company is very well managing its selling of the inventory,

which in turn means that the company has a faster selling of its inventory and as less funds tied up

to the company. This is a situation where accompany needs to be careful as they are sometimes

subjected to stock outs. On the other hand a company with low inventory turnover ratio shows that

they having a pretty good amount of obsolete inventory which at times is difficult for selling. This

may take up company’s profit unless they have a reason for holding up the inventory.

In the above graph we can notice that Tootsie is having a high ratio when compared to Hershey’s.

Here the management of Hershey’s should find out ways for improving the ratio in order to prevent

losses.

6. DAYS IN INVENTORY

TOOTS

IE

HERSHE

Y

2007 154 137.7

2006 154 152.7

2005 85.1 153

20

2007 2006 20050

20406080

100120140160

TOOTSIEHERSHEY

SOLVENCY RATIOS

1 .DEBT-TO-TOTAL ASSETS RATIOS

TOOTSI

E

HERSHE

Y

200

7 21% 85%

200

6 20% 83%

200

5 24% 76%

2007 2006 20050%

10%20%30%40%50%60%70%80%90%

TOOTSIEHERSHEY

Explanation: Total liabilities –total assets = Total Income

Total income maintained by these companies are evaluated in the form of %, and the highest profit

percentage is maintained by tootsie and that is about 85% in 2007 and by Hershey’s is 24% in 2005

which means that the Hershey’s profit percent is very less than tootsie.

21

2. TIMES INTEREST EARNED RATIO

TOOTSIE HERSHEY

2007 118.5 1887

2006 131.55 4956.93

2005 42.06 5714.75

2007 2006 20050

1000

2000

3000

4000

5000

6000

TOOTSIEHERSHEY

Explanation – Times interest earned ratio explains on ‘what’ the total investment has been made by

these companies. Investments can be in many forms like in the form of stock, shares and producing

new products etc. And we can see how Tootsie has earned its interest, which is three times more

than Hershey’s. This again shows that Tootsie has very powerful managing skills and they are

perfect in investing their assets and getting back the returns.

3 .CASH DEBT COVERAGE RATIO

TOOSI

E

HERSHE

Y

2007 0.5 0.219

2006 0.31 0.215

2005 0.46 0.134

22

2007 2006 20050

0.050.1

0.150.2

0.250.3

0.350.4

0.450.5

TOOSIEHERSHEY

Explanation: the cash debt coverage ratio shows what percentage of a debt the current cash flow

of a company can retire. From the above graph we can interpret that the Tootsie has a very high

percent debt which can be very well retained by the current cash flow when compared to the

Hershey’s. Cash debt coverage ratio of 1:1, or 100% or greater suggests that a company can repay

all its debts within one year. Here Tootsie can repay all its debt, so I feel that it is wise to invest in

Tootsie than in Hershey’s.

4. FREE CASH FLOW

2007 2006 20050

100,000200,000300,000400,000500,000600,000700,000800,000

TOOTSIEHERSHEY

Explanation- cash provided by operations-capital expenses-cash dividends

Cash inflow of the company is very important rather than cash outflow, Tootsie has very well

managed its cash in many ways and by the above statistics we can clearly states that how tootsie

managed its funds inflow and outflow. Hershey’s outflow is very high when compared to inflows, if

company’s expense is high then their income then cash outflow is high than inflow. This shows that

Hershey’s may not be more liquid, which is not a wise situation for the investors.

PROFITABILITY RATIOS

1 .GROSS PROFIT RATIO

23

TOOTS

IE

HERSHE

Y

2007 34.20% 33%

2006 38% 37%

2005 39.10% 38%

2007 2006 200528.00%

30.00%

32.00%

34.00%

36.00%

38.00%

40.00%

TOOTSIEHERSHEYSeries3

Explanation: Gross profit ratio always helps us to know to what an extent the company selling

prices of goods per unit can be reduces without including the process of incurring losses on the

operations. It always reflects the efficiency of a firm with which it is producing its products. As we

know the gross profit of a company is found by reducing its cost of goods sold from the net sales,

higher the gross profit the better it is and better the company is. Tootsie is having a high gross

profit, which shows that its net sales and returns a very good when compare to Hershey’s.

2 .PROFIT MARGIN RATIO

TOOTS

IE

HERSHE

Y

2007 10% 0.04%

2006 13% 0.11%

2005 15.80% 0.10%

24

2007 2006 20050%

2%

4%

6%

8%

10%

12%

14%

16%

TOOTSIEHERSHEYSeries3

Explanation: A high profit margin always indicates a more profitable company that in is having a

better control over its costs when compared to its competitors. Profit margin is always displayed as

a percentage. This shows that Tootsie is having a very good net income for each dollar of sales

when compare to the Hershey’s. But due some reasons Tootsie’s margin ration has decreased when

compared to the previous years, which shows that the company’s cost have been increased at a very

greater rate than its sales which is the reason behind its decreased margin ratio for the year 2007.

3 .RETURN ON ASSETS RATIO

TOOTS

IE

HERSHE

Y

2007 64% 0.05%

2006 82% 0.02%

2005 94% 0.02%

2007 2006 20050%

10%20%30%40%50%60%70%80%90%

100%

TOOTSIEHERSHEY

Explanation: ROA graph gives the interested investors an idea of how effectively a company is

converting the money it has invested into its net income. Here in again it can be interpreted from

25

the graph that the Tootsie is a very good ROA compared to its competitors which reveals that the

investors would interested with the Tootsie.

4 .ASSET TURNOVER

TOOTS

IE

HERSHE

Y

2007 61% 14%

2006 62% 16%

2005 60% 17%

2007 2006 20050%

10%20%30%40%50%60%70%

TOOTSIEHERSHEY

Explanation: It is the amount of sales generated by the company for every dollar's worth of its

assets. The ratio is calculated by dividing the company’s sales in by its assets in dollars. Asset

turnover helps us to identify how well the firm is able to use its assets in producing revenue or sales.

The higher the ratio the better the company is at generating the revenue for its expanding or

manufacturing purposes. This also shows the pricing strategy of the company. We know that the

companies with a low profit margin ratio always tend to have a high asset turnover, while those

with high profit margins have low asset turnover. Again Tootsie is doing better when compared to

its competitor.

5 .RETURN-ON-EQUITY

TOOTS

IE

HERSHE

Y

2007 3.60% 1.01%

2006 3.57% 0.95%

2005 1.77% 0.62%

26

2007 2006 20050.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%

TOOTSIEHERSHEY

Explanation: Return on equity is one among the important ratios of the profitability metrics of a

company. It always reveals the amount of profit a company has earned in comparison with the total

amount of shareholder equity found in the company’s balance sheet. Organizations that have a high

return on equity are more likely to be one among the companies that are capable of generating their

cash internally. For example, a company with high return on equity when compared to it industry

averages is always better for investment. The higher an organization can get the "return" on your

equity, the better it is. From the data above we can say that Tootsie is better off in generating cash

internally and it is wise to invest in this company.

6 .EARNINGS PER SHARE

TOOTS

IE

HERSHE

Y

2007 1.788 0.36

2006 2.35 0.81

2005 2.18 0.48

20072006

20050

0.51

1.52

2.5

TOOTSIEHERSHEYSeries3

Explanation: The EPS can be calculated by dividing the company’s total profits by the number of

shares it issued. For example, a company with $1 billion dollars in earnings and 100 million shares

27

would have a earning of about $10 per share. This is best way to determine whether a company is

growing or not. From the above graph we can seen that Tootsie is having an EPS when compare to

Hershey’s. But we can see that its EPS grew from the year 2005 to 2006 but decreased in the year

2007. Even the Hershey’s followed the same path for the three years. The reason behind it may be

market fluctuations. But still it is again a wise idea to invest with the Tootsie as it still far ahead of

its competitor.

7. PRICE EARNINGS RATIO

TOOTS

IE

HERSHE

Y

2007 0.525 2.67

2006 0.5 3.01

2005 0.623 4.27

2007 2006 20050

0.51

1.52

2.53

3.54

4.5

TOOTSIEHERSHEY

Explanation: it is the valuation ratio of a company’s with its current share price compared with its

per-share earnings The P/E ratio is also referred as the "multiple", as it shows how much the

investors are interested to pay to the company per dollar of its earnings.  For example, if a company

is presently trading at a multiple (P/E) ratio of about of 20, the interpretation that can be made is

that an investor is interested or wants to pay or spend $20 for every $1 of current earnings of the

company. From the graph we can realize that that Tootsie is having a P/E ratio which shows that

investors are still interested to invest in this company that the ratio has gradually decreased when

compared to the previous years.

28

EVALUATION REPORT

LIQUIDITY RATIO

Current ratio = current assets/ current liabilities

Hershey’s Tootsie

Year Ratios Ratios

2005 0.88 3.445

2006 0.97 3.06

2007 0.92 2.16

Graphical presentation

29

Category 1 Category 2 Category 3 Category 40246

comparing Current ratio's of both Hersheys and Tootsie company for 3 years

Series 1Series 2Series 3

year from 2005 - 07

Ratio

s

Explanation

Current ratio is very important because it measures firms ability to meet the short term obligations

when due. Because every investor before investing will research on companies current asset ratio

because if there is any uncertainty in a business, current assets can be converted into cash to pay

short term debt obligations.

The above Graph clearly shows that Tootsie current ratio’s are much better than Hershey’s from

fewer products, because tootsie has concentrated much on current assets and every time it made an

attempt to decrease its liabilities value. Hershey’s value has decreased its current ratio value from

2006 to 2007.

II. SOLVENCY RATIOS

Free cash flow =cash provided by operations-capital expenses-cash dividends

2007 2006 2005

716270 671560 422596

87289 77599 82082

Graphical presentation

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8.23.2

1.41.2

Free cash flow between two companies1st Qtr2nd Qtr3rd Qtr4th Qtr

Explanation

Free cash flows can be explained as an amount of money which a company generates after investing

in capital expenditure and paying dividends, dividends can also be calculated as a part of profit after

paying off. Capital expenditure can be calculated as a future profit and this capital expenditure

should be minimized for the success of the company.

In the above and upon calculating solvency ratios we can clearly see how Tootsie Company has

managed its cash flow in generating income but Hershey’s though earned lot of profit but ratio is

less when compared to Tootsie.

3. PROFITABILITY RATIOS

Gross profit ratio = gross profit/ net sales

2007 2006 2005

32% 37% 38%

34.2% 38% 39%

Graphical presentation

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8.23.2

1.41.2

Gross profit rate1st Qtr2nd Qtr3rd Qtr4th Qtr

Explanation

Gross profit Ratio – Gross profit ratio can be defined as Income earned after deducting all

expenditure, from the company. Indicate a company’s ability to maintain an adequate selling price

above its cost of goods sold.

When compared with Hershey’s company profit is high and Tootsie Company is also high. When

compared tootsie is doing well, it has also increased its sales every year, sales margin has been

reached very quickly as expected; Hershey’s also expanded its product after increase in sales.

CONCLUSION

If I need to invest in one of these companies (Hershey’s and Tootsie) I would definitely choose

Tootsie only because after evaluating Profitability, Liquidity and solvency ratios, I can conclude

that Tootsie is doing well in Investing, maintaining its current assets and in giving short term debts,

and also cash inflows are increasing from year to year and outflow is reduced which indicates that

they are planning tremendously in reducing their expenditure.

Their solvency ratios evaluation has provided me with a very good information on how Tootsie is

managing its Inventory, as inventory is the key and major part of any business and on the other

hand the data shows that Hershey’s did not concentrate much on its inventory, and it has invested a

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lot on stock but earnings from stock has decreased from time to time. And also Tootsie’s production

capacity has been increased and days in inventory is much quick than Hershey’s

For any investor Net profit ratio is very important, when comparison is done between the two

companies I could be able to see that Net profit Ratio of TOOTSIE is high 34.2%,38% and 39.1%

but Hershey’s Gross profit ratio is 33%,37% and 38% for the years 2007, 2006 and 2006

respectively.

As an investor I would also concentrate much on Earnings per share before Investing as this amount

in the form of purchasing shares, As a investor I will try to sell my shares for profit when EPS

(Earnings Per Share) is high, in this case if I compare EPS of the two companies I will definitely

choose Tootsie because their EPS value is increasing from one year to next year. EPS of Hershey’s

is 0.48$ in 2005, 0.81 in 2006 and 0.48$ in 2009, A drastic fall from 2006 to 2007 made Hershey’s

to lose market share. Tootsie company did not raise its EPS value but to some extent it is better to

invest, as the company’s EPS in the year 2005 is 2.18$ per share, later it decreased to 2.18$.

According to me after calculating and evaluating the company’s financial after referring to their

financial reports which included their balance sheet, income statement and cash flow statements, I

would like to recommend investing in Tootsie when compared to Hershey’s.

But as a consumer I personally prefer to have Hershey’s chocolates than Tootsie’s, as I think that

Hershey’s chocolates taste good.

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BIBILIOGRAPHY

www.hershey.com

www.tootsieroll.com

www.biz.yahoo.com/i

www.wiley.com/college/kimmel

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