University of Phoenix
Tootsie Roll Industries Inc. Loan Package
Tootsie Roll Industry Inc. will be preparing a loan package to maintain ultimate company performance, maximize the company’s profits, and increase the shareholder’s value. Tootsie Roll Industry Inc. will be applying for a loan that will increase the company’s total liability by $17,449.50. A perfect loan package includes a concise executive summary that focuses primarily on the ratio analysis of the financial statement, justification for the loan, and explanation of how the company intends to use loan. The corresponding ratio calculations are justified in the appendix.
Leo Hirshfield opened the first small store in 1896, which has grown into Tootsie Roll Industry Inc. Annual sales estimate nearly half-a-billion dollars and more than 62 million Tootsie Roll candies are produced daily. Tootsie Roll Industries is one of the world’s largest candy producers. Tootsie Roll Industry Inc. continues to expand through its mission and values by focusing on relentless hard work; an unyielding commitment to quality; and a humble, socially responsible, family-run corporate culture (Tootsie Roll Industries, n.d.).
Under the category of liquidity ratios (Kimmel, Weygandt, & Kieso, 2009), the current ratio indicates the ability for a company to pay off the short-term debt with its assets. In Tootsie Roll’s case, it has more than three times of assets over the short-term liability. Inventory turnover ratio is the information that shows the frequencies of a company’s sold inventory and replaced within a period (Investopedia, 2012). Tootsie Roll is 5.400; in measuring if sales and purchasing are strong; creditors should compare it with the average inventory turnover ratio in the industry. For example Hershey’s inventory turnover ratio was 5.3 in the same year (Morning Star, 2012). The comparison shows that similar-sized companies in the same industry have similar sales rate and turnover times.
In the solvency ratio, debt ratios show the proportion of a company’s assets financed through debt (Investorwords, n.d.). Cash debt coverage ratios show the ability of a company to repay the liability from the cash generated by operations (Venturelibne, n.d.). If this ratio is 1:1 (100%), it means a company can repay debts within one year. Because Tootsie Roll has a 1.499:1 ratio, it would take a shorter time to repay its debt. The time interest earned ratio determines if the earnings are available to cover the interest payment (Bizwiz Consultant, n.d.). The higher the ratio is, the greater the chance is to meet the interest payment.
Concerning profitability ratio calculations, the gross profit rate is the relationship between gross profit net sales (Kimmel, Weygandt, & Kieso, 2009). A gross profit rate of 1% is usually unacceptable in most industries (Kimmel, Weygandt, & Kieso, 2009). Tootsie Roll has a 33.5% gross profit rate. Asset turnover ratios show the efficiency of a company to generate sales with its assets (Kimmel, Weygandt, & Kieso, 2009). Tootsie Roll has a ratio of 0.614, which accounts for each dollar of assets. Tootsie Roll produces 0.614 dollars of sales.
Justification of Loan
Tootsie Roll Industries requires a business loan to introduce its Tootsie Roll product to the American population. The loan will be used to implement a new marketing and advertisement campaign to deluge the market with the Tootsie Roll brand. The advertising campaign will introduce Tootsie Roll’s candies to major vendors, such as Hershey and M & M Mars.
New Marketing Strategy
Tootsie Roll will select...