Financial Analysis: Hershey Corp. & Tootsie Roll Industries
Financial Analysis: Hershey Corp. & Tootsie Roll Industries
Financial Analysis: Hershey Corp. & Tootsie Roll Industries
Hershey and Tootsie Roll are both companies in the confection industry. We compared both companies for the years 2004, 2005, and 2006 against each other and against the industry averages in order to make a decision about which company we would choose to invest in. The comparisons we used to make our decision were ratios for liquidity, solvency, and profitability. As a result of our analyses, we have chosen the Hershey Company.
Liquidity
Liquidity ratios "measure short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash" (Kimmel Weygandt, & Kieso, 2007, p. 74). The higher the ratio value the larger the margin of safety that the company possesses to cover short-term debts. The liquidity ratios we used in analyzing both Hershey and Tootsie Roll are the current ratio, current cash debt coverage ratio, accounts receivable turnover ratio, average collection period (average age of receivables), inventory turnover, and days in inventory (average age of inventory).
Current Ratio Results
Current ratio is "a measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities" (Kimmel et al, 2007, p. 73). A current ratio of 1.0 means the company could theoretically survive for one year, even if it made no sales.
Hershey's current ratio has slightly improved from .9199 in 2004 to .9754 in 2006; however, this is still significantly below the industry average of 1.30. Tootsie Roll's current ratio has significantly increased from 2.3409 in 2004 to 3.0689 in 2006. In addition, Tootsie Roll's current ratio has been above the industry average for all three years. Therefore, Tootsie Roll is able to pay its current debt more than Hershey.
Current Cash Debt Coverage Ratio
Current cash debt coverage is "a cash-basis ratio used to evaluate
Financial Analysis: Hershey Corp. & Tootsie Roll Industries
Hershey and Tootsie Roll are both companies in the confection industry. We compared both companies for the years 2004, 2005, and 2006 against each other and against the industry averages in order to make a decision about which company we would choose to invest in. The comparisons we used to make our decision were ratios for liquidity, solvency, and profitability. As a result of our analyses, we have chosen the Hershey Company.
Liquidity
Liquidity ratios "measure short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash" (Kimmel Weygandt, & Kieso, 2007, p. 74). The higher the ratio value the larger the margin of safety that the company possesses to cover short-term debts. The liquidity ratios we used in analyzing both Hershey and Tootsie Roll are the current ratio, current cash debt coverage ratio, accounts receivable turnover ratio, average collection period (average age of receivables), inventory turnover, and days in inventory (average age of inventory).
Current Ratio Results
Current ratio is "a measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities" (Kimmel et al, 2007, p. 73). A current ratio of 1.0 means the company could theoretically survive for one year, even if it made no sales.
Hershey's current ratio has slightly improved from .9199 in 2004 to .9754 in 2006; however, this is still significantly below the industry average of 1.30. Tootsie Roll's current ratio has significantly increased from 2.3409 in 2004 to 3.0689 in 2006. In addition, Tootsie Roll's current ratio has been above the industry average for all three years. Therefore, Tootsie Roll is able to pay its current debt more than Hershey.
Current Cash Debt Coverage Ratio
Current cash debt coverage is "a cash-basis ratio used to evaluate
References: Hoover 's Inc. (2007). The Hershey Company. Retrieved October 8, 2007, from http://premium.hoovers.com.proxy.devry.edu/subscribe/co/factsheet.xhtml?ID=rfkttffyfftfht. Hoover 's Inc. (2007). Tootsie Roll Industries, Inc. Retrieved October 8, 2007, from http://premium.hoovers.com.proxy.devry.edu/subscribe/co/factsheet.xhtml?ID=rrcsfffrtxscsh Kimmel, P.D., Weygandt, J.J., & Kieso, D.E Reuters. (2007). Hershey Ord Shs: Key Ratios. Retrieved October 8, 2007, from http://moneycentral.msn.com/investor/invsub/results/compare.asp?Symbol=HSY Reuters The Hershey Company. (2005, March 7). 2004 Annual Report to Stockholders/Form 10-K. Retrieved September 12, 2007, from http://library.corporate-ir.net/library/11/115/115590/items/143020/2004AR.pdf The Hershey Company The Hershey Company. (2007, February 23). 2006 Annual Report to Stockholders/Form 10-K. Retrieved September 12, 2007, from http://library.corporate-ir.net/library/11/115/115590/items/236286/2006AR.pdf Tootsie Roll Industries, Inc Tootsie Roll Industries, Inc. (2006). Annual Report 2005. Retrieved September 12, 2007, from http://www.tootsie.com/pdf/annualreport2005.pdf Tootsie Roll Industries, Inc