January 12, 2012
Tootsie Roll Industries Loan Package
The Tootsie Roll Industry began in 1896 in New York City, New York. The very first product they produced was a short, oblong, chocolate, chewy candy that melts in the mouth after a short time of chewing. This piece of candy brought the company fame and fortune, and soon after was a household name for a sweet treat. Today, the company produces more than 62 million pieces of candy each day that include other sweet tasty treats like the “Tootsie Pop, Charms Blow Pop, Mason Dots, Andes, Sugar Daddy, Nik-L-Nip, Charleston Chew, Cella’s Chocolate-Covered Cherries, Dubble Bubble, Razzles, Junior Mints, and Caramel Apple Pop” (Tootsie Roll Industries, 2013). The sale of all these sweet treats gives Tootsie Roll annual sales of more than half a million dollars, and includes distribution channels in 75 countries. Chief Executive Officer, Melvin J. Gordon, and president and Chief Operating Officer, Ellen R. Gordon, believe the success of the company is a result of the caliber of people they pick and retain; which is nothing less than superior. Also, maintaining a financial posture that practices eliminating waste, minimizing cost, and continually implementing performance improvements.
Analysis of the financial statements indicates that Tootsie Roll Industries is financially stable. Additionally the company is steadily growing each year, and in a position to continue expanding. The following table contains key ratios that are indicators of the company’s ability to obtain a loan for research and development, expansion, and job creation.
Tootsie Roll Industries ratio analysis (MSN Money, 2013)
Liquidity is the ability to turn assets into cash in a short term to pay off debt or any expenses that require immediate attention that was not foreseen by the business (Kimmel, Weygandt, & Kieso, 2009). It is vital that businesses have a strong cash reserve of liquidity for up to six months to withstand any economic recession. The current ratio helps investors determine how much debt and assets a particular company has. As the table illustrates, Tootsie Roll Industries current ratio is 3.63 that entails the company is capable of paying off their short-term debt because the company has more assets than debt. In some cases, companies may have a current ratio of less than one, which indicates the company has more liabilities and less asserts to liquidate. In such cases, the particular company is unlikely to pay debt that can lead to bankruptcy (Kimmel, Weygandt, & Kieso, 2009).
Analyzing the current ratio only determines the year end balances of the current liabilities and assets; however, the current cash debt coverage ratio is more of an indicator how quickly a company can produce cash or liquidate assets from various funds (Kimmel, Weygandt, & Kieso, 2009). The ratio consists of cash from operating activities as oppose to a balance at one particular time, and it is a common threshold to be at or above .40. Tootsie Roll Industries had a current cash debt coverage ratio of .86 that is .44 higher than their competitor Hershey’s and entails that Tootsie Roll Industries is in strong financial health as the company is capable of paying debt with cash.
The ability of a company to meet their long-term liabilities and expenses and is a good indicator for investors and banks to determine if the particular company is capable of expansion and growth (Kimmel, Weygandt, & Kieso, 2009). The debt to total asset ratio helps determine the percentage of financing by creditors and the ability of the company to...