Tootsie Roll Industries Inc. Loan Package
Tootsie Roll Industry Inc. needs to secure a loan to ensure the company’s growth for the future. To secure the loan the company must assemble a loan package to submit to the lender. In the loan package the company must include a ratio analysis of the company’s financial statements to show the financial stability and profitability of the company. The company must also provide a justification for the loan. In addition, the company must also provide a plan to show how the proceeds will be allocated. It is imperative that Tootsie Roll Industries, Inc. provides each component to receive the loan to grow the company.
The ratio analysis consists of three categories: liquidity, solvency, and profitability. The liquidity of the company is important to determine the capability of the company to pay obligations and meet unexpected needs for cash. The solvency is important to determine the ability of the company to survive over a long period. Finally, the profitability is to measure the income and operating success of a company for a given period of time (Financial Analysis, University of Phoenix, 2012). This information is available in the balance sheet, cash flow statement, and the income statement.
To determine the liquidity of Tootsie Roll Industries Inc. the working capital, current ratio, and the inventory turnover ratio was used. To determine the working capital subtract the current liabilities from the current assets. Tootsie Roll Industries Inc.’s working capital is $141, 754. To determine the current ratio the current assets are divided by the current liabilities, which equals a current ratio of 3.4 for Tootsie Roll Industries, Inc. Finally, the inventory ratio is found by dividing the cost of goods sold by the average inventory. Tootsie Roll Industries Inc.’s inventory ratio equals 5.4. The liquidity of the company is healthy because the working capital is high, the current ratio is above the 1.5 threshold, and the inventory turnover is at a good rate. Therefore, the liquidity shows that the company can pay obligations and meet unexpected needs for cash.
To determine the solvency of Tootsie Roll Industries Inc. the debt to total asset ratio and the cash debt coverage ratio was used. To determine the debt to total asset ratio the total liabilities is divided by the total assets. This equals a ratio of 0.21 for Tootsie Roll Industries Inc. This ratio indicates that the total debt to the total assets is very low. To determine the cash debt coverage ratio the cash provided by operations is divided by the average total liabilities. Tootsie Roll Industries Inc.’s cash debt coverage ratio is 0.54, which indicates that cash provided by operations is almost double what the company’s debt is. In all the solvency of Tootsie Roll Industries Inc. can conclude that the company survive over a long period of time.
To determine the profitability of Tootsie Roll Industries Inc. the gross profit rate, profit margin ratio, and asset turnover ratio were used. To determine the gross profit rate the gross profit is divided by the net sales, which equals a rate of 0.34 for Tootsie Roll Industries Inc. To determine the profit margin ratio the net income is divided by the net sales, which equals 0.1 for Tootsie Roll Industries Inc. Finally, the asset turnover ratio is determined by net sales divided by the average total assets, which equals 0.61 for Tootsie Roll Industries Inc. From these calculations it can be determined that the company is profitable over a given period of time.
Justification for Loan
The main reason a company like Tootsie Roll, Inc would be subject to the acquisition of a loan is the increase in costs for ingredients in the...