Go To Doc Sharing For The Detailed Course Project Instructio

Go 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.

Paper For Above instruction

Introduction

The analysis of financial statements and ratios is fundamental for assessing the financial health and investment potential of corporations. This paper compares two major companies in the confectionery industry: Tootsie Roll Industries and the Hershey Company. By examining their profiles and conducting a detailed ratio analysis, we aim to provide insights into their liquidity, solvency, and profitability, ultimately determining which company presents a better investment opportunity based on these financial metrics.

Company Profiles

Tootsie Roll Industries, founded in 1896 in New York, originated as a small candy store and has grown into a significant player in the confectionery industry. Headquartered in Chicago, Tootsie Roll operates throughout North America and exports to over 75 countries. The company employs approximately 2,200 full-time staff and offers a variety of branded candy products, including Tootsie Rolls, Tootsie Pop, Charms Blow Pop, Mason Dots, Andes, Sugar Daddy, Charleston Chew, Double Bubble, Razzles, Caramel Apple Pop, and Junior Mints. In 2011, Tootsie Roll reported net product sales of about $528 million, reflecting its extensive market reach and consistent consumer demand.

Hershey Company, established by Milton S. Hershey in 1893, is recognized globally for its iconic chocolate and confectionery products. Headquartered in Hershey, Pennsylvania, the company has a sizable workforce of approximately 12,100 employees. Hershey's product portfolio includes renowned brands such as the Hershey Bar, Hershey's Kisses, Hershey's Bliss, Reese's, Twizzlers, Almond Joy, Kit Kat, and Ice Breakers. In 2011, Hershey achieved net product sales of approximately $6 billion, underscoring its dominant market position and global reach.

Financial Ratio Analysis

Using the financial statements provided, ratios were calculated for both Tootsie Roll and Hershey to evaluate liquidity, profitability, and solvency. The calculations are detailed in an Excel spreadsheet, with commentary on what each ratio indicates about the company's financial health.

Liquidity Ratios

The current ratio measures a company's ability to meet short-term liabilities with its short-term assets. Tootsie Roll's current ratio of 3.64 indicates a strong liquidity position, as it has $3.64 in current assets for every dollar of current liabilities. In contrast, Hershey's current ratio of 1.74, while lower, still suggests adequate liquidity but less cushion than Tootsie Roll. The current cash debt coverage ratio further emphasizes Tootsie Roll's liquidity strength with a ratio of 0.86 compared to Hershey's 0.47, indicating Tootsie Roll's better capability to cover its current liabilities with cash generated from operations.

Solvency Ratios

Solvency ratios assess a company's capacity to meet long-term obligations. Tootsie Roll's debt-to-total assets ratio of 22.4% reveals a conservative leverage position, whereas Hershey's significantly higher ratio of 80.2% indicates extensive reliance on debt. The times interest earned ratio shows Tootsie Roll's excellent ability to cover interest expenses, with a ratio of 504.4, contrasted with Hershey's ratio of 11.4. This underscores Tootsie Roll's superior ability to service its debt and suggests a lower financial risk profile. Additionally, Tootsie Roll's positive free cash flow of $15.6 million permits flexibility for future investments or debt reduction, whereas Hershey's negative free cash flow of $47 million signals potential liquidity concerns.

Profitability Ratios

Hershey outperforms Tootsie Roll across multiple profitability metrics. The gross profit rate of 41.6% for Hershey indicates higher efficiency in production and sales, compared to Tootsie Roll's 31.2%. The net profit margin of 10.3% for Hershey exceeds Tootsie Roll's 8.3%, reflecting better overall profitability. Hershey's return on assets of 14.5% and return on equity of 69.5% indicate higher utilization of assets and superior returns to shareholders. The price/earnings ratio difference (Hershey's 22 versus Tootsie's 31) suggests market expectations and valuation perceptions vary, with Hershey potentially perceived as a growth or value stock.

Comparison and Interpretation

From a liquidity standpoint, Tootsie Roll demonstrates stronger short-term financial stability, which could appeal to conservative investors prioritizing safety and liquidity. Conversely, Hershey's higher inventory turnover and receivables turnover ratios suggest operational efficiency and effective management of inventory and receivables, supporting its profitability strength.

In terms of solvency, Tootsie Roll's lower leverage ratios and substantial interest coverage make it less risky and more capable of handling financial downturns. Hershey's high debt levels and limited interest coverage indicate higher financial risk but potentially greater growth opportunities if managed effectively.

Profitability analysis clearly favors Hershey, with higher margins, return on assets, and return on equity, reflecting superior operational performance and earnings generation capacity. While Tootsie Roll offers safety and stability, Hershey's profitability metrics and market valuation imply a growth-oriented profile.

Conclusion

Based on the comparative financial ratio analysis, Tootsie Roll presents a safer investment for conservative investors seeking stability, liquidity, and lower financial risk. Its strong current ratio, excellent interest coverage, and positive free cash flow reinforce this view. Conversely, Hershey displays higher profitability ratios, better operational efficiencies, and higher return on equity, making it more attractive to growth-oriented investors willing to accept higher leverage and associated risks. Ultimately, the choice depends on the investor’s risk appetite: Tootsie Roll for safety and liquidity, Hershey for growth and profitability.

References

  • Big Charts for Hershey. (2013). Retrieved August 13, 2013, from https://bigcharts.marketwatch.com
  • Big Charts for Tootsie Roll. (2013). Retrieved August 13, 2013, from https://bigcharts.marketwatch.com
  • Hershey Company. (2013). Retrieved August 13, 2013, from http://www.thehersheycompany.com
  • Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2013). Financial accounting: Tools for business decision making (7th ed.). John Wiley & Sons, Inc.
  • Tootsie Roll Industries. (2013). Retrieved August 13, 2013, from http://www.tootsie.com
  • Yahoo Finance. (2013). Retrieved August 13, 2013, from finance.yahoo.com
  • Appendix A & B of Textbook. (2013). Chapters on financial ratios and analysis.
  • Investopedia. (2020). Financial Ratios – Definitions, Examples, and Tips for Calculation.
  • SEC Filings for Hershey and Tootsie Roll. (2011). Annual reports and financial statements.
  • MarketWatch. (2013). Historical stock quotes and market data.

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