Tootsie Roll Industries, Inc

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BYP 13-1FINANCIAL REPORTING PROBLEM

(a)TOOTSIE ROLL INDUSTRIES, INC.
Trend Analysis of Net Sales and Net Earnings
For the Five Years Ended 2001

Base Period 1997—($ in thousands)

20012000199919981997

(1)Net sales
Trend$423,496
113%$427,054
114%$396,750
106%$388,659
103%$375,594
100%

(2)Net
  earnings
Trend
  65,687
108%
  75,737
125%
  71,310
118%
  67,526
111%
  60,682
100%

This analysis of Tootsie Roll shows a favorable trend in net sales over the past five years. Tootsie Roll showed a steady increase from 1997 through 2000. Net sales declined slightly from 2000 to 2001. The net earnings trend is also favorable from 1997 to 2000. 2001 shows a significant decline in net earnings. The reasons for such decreases in profitability measures during 2001 would require further investigation.

(b)(000’s omitted)

(1)Debt to Total Assets

2001:  ($618,676 – $508,461) ÷ $618,676 = .178
2000:  ($562,442 – $458,696) ÷ $562,442 = .184

(2)Times Interest Earned

2001:  ($100,787 + $356) ÷ $356 = 284.1 times
2000:  ($117,808 + $866) ÷ $866 = 137.0 times

Tootsie Roll’s long-term solvency is not in jeopardy. The debt to total assets ratio indicates that creditors are providing only 18% of Tootsie Roll’s total assets. Also, Tootsie Roll easily has the ability to pay interest payments when they come due as indicated by the times interest earned ratio of over 200 times.

BYP 13-1 (Continued)

(c)(000’s omitted)

(1)Profit Margin

2001:  $65,687 ÷ $423,496 = .16
2000:  $75,737 ÷ $427,054 = .18

(2)Asset Turnover

2001:  $423,496 ÷ [($618,676 + $562,442) ÷ 2] = .72 times
2000:  $427,054 ÷ [($562,442 + $529,416) ÷ 2] = .78 times

(3)Return on Assets

2001:  $65,687 ÷ [($618,676 + $562,442) ÷ 2] = .111
2000:  $75,737 ÷ [($562,442 + $529,416) ÷ 2] = .139

(4)Return on Common Stockholders’ Equity...
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