The Hershey Company and Tootsie Roll Industries are two main confectionery companies. Every year both Hershey and Tootsie compile their annual reports. These reports include a plethora of information in regards to assets, liabilities and stockholders’ equity, earnings, comprehensive earnings, retained earnings, cash flows, and so forth. To compare Hershey and Tootsie Roll on financial level, let’s look at both companies Liquidity, Solvency and Profitability Ratios for year of 2007. LIQUIDITY RATIOS measure the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. Short-term creditors such as bankers and suppliers are particularly interested in assessing liquidity. Here are both companies’ Liquidity Ratios for the year of 2007: LIQUIDITY RATIOS| TOOTSIE ROLL| HERSHEY|
CURRENT RATIO| 3.45| 0.88|
INVENTORY TURNOVER RATIO| 5.4| 5.3|
DAYS IN INVENTORY| 68 days| 69 days|
RECEIVABLES TURNOVER RATIO| 14.61| 9.80|
AVERAGE COLLECTION PERIOD| 25 days| 38 days|
CURRENT CASH DEBT COVERAGE RATIO| 1.50 times| 0.51 times|
The Hershey has a current ratio of 0.88. As we know, low values of current ratio may indicate that a firm may have difficulty meeting current obligations, but not in this case. If inventory turns over much more rapidly than the accounts payable become due, then the current ratio will be less than 1 (The Hershey has inventory that can be immediately converted into cash). TOOTSIE ROLL’s ratio is 3.45. A number this high means that management has so much cash on hands, they may be doing a poor job of investing it. Tootsie’s inventory turnover ratio is higher than Hershey’s. This means that Tootsie sells its inventory faster than Hershey. Hershey has higher days in inventory index which means that Hershey is not selling its total inventory as quickly as Tootsie. It could be a sign that Hershey can become less profitable....