Financial Analysis of The Hershey Company

Liquidity ratios measure a company’s ability to meet its maturing short-term obligations. In other words, can a company quickly convert its assets to cash without a loss in value if necessary to meet its short-term obligations? Favorable liquidity ratios are critical to a company and its creditors within a business or industry that does not provide a steady and predictable cash flow. They are also a key predictor of a company’s ability to make timely payments to creditors and to continue to meet obligations to lenders when faced with an unforeseen event.
Current Ratio
Current Assets/Current Liabilities

This ratio reflects the number of times short-term assets cover short-term liabilities and is a fairly accurate indication of a company 's ability to service its current obligations. A higher number is preferred because it indicates a strong ability to service short-term obligations. The composition of current assets is a key factor in the evaluation of this ratio. Depending on the type of business or industry, current assets may include slow-moving inventories that could potentially affect analysis of a company 's liquidity how long could it potentially take to convert raw materials and inventory into finished products? (For this reason, the quick ratio may be preferable to the current ratio because it eliminates inventory and prepaid expenses from this ratio for a more accurate gauge of a company 's liquidity and ability to meet short-term obligations.)

The current ratio for Hershey Company is 1.44 indicates the company’s ability to service short-term obligations is satisfactorily. However, the value of the quick ratio will provide a clearer indication of the company’s success in this area.

Quick Ratio
(Cash + Marketable Securities + Trade Accounts Receivable)/ Current Liabilities

This ratio, also known as the acid test ratio, measures immediate liquidity - the number of times cash, accounts receivable, and marketable securities cover