Project Template Comparing Tootsie Roll & Hershey(1)

Complete your Title page on this tab.

Please include your name, the course, the date, your instructor's name, and the title for the Project.

Go to Course Home tab and then Course Project for detailed Instructions and grading rubric.

used for the Profiles on the Bibliography tab.

Complete one paragraph profiling each company's business including information such as a brief history, where they are located, number of employees, the products they sell, etc. Please reference any websites you used

Tootsie Roll Industries began in a small candy store in New York in 1896. Tootsie Roll is now headquartered in Chicago with operations throughout North America and with distribution channels in over 75 countries. Tootsie Roll has 2,200 full-time employees. Tootsie Roll sells the following branded candy: Tootsie Roll, Tootsie Roll Pop, Charms Blow Pop, Mason Dots, Andes, Sugar Daddy, Charleston Chew, Double Bubble, Razzles, Caramel Apple Pop, and Junior Mints. Tootsie Roll had 2007 net product sales of $493 million.

Hershey Company was founded by Milton S. Hershey in 1893. Hershey is headquartered in Hershey, Pennsylvania and has 11,300 full-time employees. Hershey is famous for the Hershey Bar, Hershey's Kisses, Hershey's Bliss, Reese's, Twizzlers, Almond Joy, Kit Kat, and Ice Breakers. Hershey had net product sales of $4.9 billion for 2007.

For Part 1:Use this Excel spreadsheet to compute ratios; show your computations for the six ratios listed under each part.

The financial statements used to calculate these ratios are available in Appendix A and Appendix B of your textbook.

Part 1 of the project:

Tootsie Hersheys

Earnings per share As given in the income statement $0.94 $0.96

Current ratio Current assets $199,726 = 3.45 $1,426,574 = 0.88Current liabilities $57,972 $1,618,770

Gross Profit Ratio Gross profit $165,047 = 33.5% $1,631,569 = 33.0%Net Sales $492,742 $4,946,716

Profit margin ratio Net Income $51,625 = 10.4% $214,154 = 4.3%Net Sales $497,717 $4,946,716

Inventory Turnover Cost of Goods Sold $327,695 5.4 $3,315,147 5.3Average Inventory $60,680 times $624,503 times

Days in Inventory 365 days 365 = 68 365 = 69Inventory turnover 5.4 days 5.3 days


Interpretation and Comparison between the two companies' ratios (Reading the Appendix of

Chapter 13 will help you)

Comparing these numbers is not meaningful since the number of shares outstanding differs.

Tootsie Roll has $3.45 in current assets for every $1 dollar in current liabilities while Hershey only has 88 cents. Tootsie Roll has much greater liquidity based on this ratio.

Only product sales were used for the Tootsie Roll calculation since Hershey does not have rental and royalty revenue. This ratio indicates that Tootsie Roll has a slight edge for this profitability ratio because of its ability to maintain an adequate selling price above its cost of goods sold.

Total revenue was used for the base in Tootsie Roll's profit margin calculation because they also have rental and royalty revenue. Tootsie Roll earns over 10 cents for every $1 dollar in sales whereas Hershey earns over 4 cents so the advantage goes to Tootsie Roll for this profitabiility ratio.

Tootsie Roll has a slight edge in this liquidity measure because they are selling their inventory faster than Hershey.

This ratio measures the average number of days inventory is held. Since Tootsie Roll has the edge in inventory turnover, we also see that they take one less day than Hershey to sell their inventory.



Tootsie Hersheys

Receivable Turnover Ratio Net credit sales $492,742 = 14.6 $4,946,716 = 9.80Average Net Receivables $33,723 $504,979

Average Collection Period 365 365 = 25.0 365 = 37.3Receivable Turnover Ratio 14.61 9.80

Assets Turnover Ratio Net Sales $492,742 = 0.61 $4,946,716 = 1.18Average Total Assets $802,182 $4,202,339

Return on Assets Ratio Net Income $51,625 = 6.4% $214,154 = 5.1%Average Total Assets $802,182 $4,202,339

Debt to Total Assets Ratio Total Liabilities $174,495 = 21.5% $3,623,593 = 85.3%Total Assets $812,725 $4,247,113

Times Interest Earned Ratio Net Income + Int Expense + Tax Expense $77,702 = 145.2 458,827 = 3.9Interest Expense $535 118,585



All sales are assumed to be credit sales for Tootsie Roll and Hershey. Tootsie Roll turns over their receivables at a 14.61 clip while Hershey turns their receivables 9.8 times so Tootsie has the advantage for this liquidity ratio which measures how quickly a company converts its receivables to cash.

This liquidity ratio measures the average number of days it takes for a company to collect their receivables. Since Tootsie Roll has the edge in receivables turnover, we also see that they take 12 less days than Hershey to convert their receivables to cash.

Hershey has the advantage for this profitability ratio which measures how efficiently a company uses its assets to generate sales.

Tootsie Roll earns 6.4 cents for every dollar of assets whereas Hershey earns 5.1 cents for every dollar of assets so Tootsie Roll has the advantage for this profitability ratio.

Hershey would have to liquidate 85% of its assets at their book value to pay off all of its debts while Tootsie Roll would only have to liquidate 22% of its assets at their book value to pay off all of its debts so Tootsie Roll has the advantage for this solvency ratio.

Tootsie Roll's income before interest and taxes is 145 times the amount needed to cover their interest expense while Hershey's income before interest and taxes is only 4 times the amount needed to cover their interest expense so Tootsie Roll has a large advantage for this solvency ratio.


Also complete all other Project requirements including analysis for all 3 parts. Go to Course Home tab and then Course Project for Instructions and grading rubric.


Tootsie Hersheys

Payout ratio Cash dividend declared on common stock $17,542 = 34.0% $252,263 =Net income $51,625 $214,154

Return on Common Stockholders' Equity Net income - Preferred stock dividend 51,625 = 8.1% $214,154 =Average common stockholders' equity 634,455.50 $638,173

Free cash flow$57,755

=$57,755

$336,875 =

Cash provided by operations minus capital expenditures minus cash dividends paid

Current cash debt coverage ratio Cash provided by operations $90,064 = 1.50 $778,836 =Average current liabilities $60,092 $1,536,154

Cash debt coverage ratio Cash provided by operations $90,064 = 0.54 $778,836 =Average total liabilities $167,727 $3,548,868

Price/Earnings ratio Market price as of 12/31/2007 $27.42 = 29.2 $39.40 =EPS as of 12/31/2007 $0.94 $0.96

Also complete all other Project requirements including analysis for all 3 parts. Go to Course Home tab and then Course Project for Instructions and grading rubric.

Hersheys

118%

33.6%

$ 336,875.00 =



This is a profitability ratio. Hershey distributed 118% of their earnings in the form of cash dividends while Tootsie Roll distributed 34% of their earnings in the form of cash dividends.

Tootsie Roll earns 8 cents in net income for every dollar invested by the common stockholders while Hershey earns 33 cents for every dollar invested so Hershey has the advantage for this profitability ratio.

Hershey has $336,875 in free cash flow while Tootsie Roll has $57,755 so Hershey has the advantage for this solvency ratio.

0.51

0.22

41.0

Tootsie Roll has $1.50 in cash provided by operating activities for every $1 dollar in average current liabilities while Hershey has only 50 cents in cash provided by operating activities for every $1 dollar in average current liabilities so Tootsie Roll is stronger for this liquidity ratio.

Tootsie Roll has 54 cents in cash provided by operating activities for every $1 dollar in average total liabilities while Hershey has only 22 cents of cash provided by operating activities for every $1 dollar in average total liabilities so Tootsie Roll has the advantage for this solvency ratio.

The stock prices were found at Bigcharts.com. Hershey has a higher price-earnings ratio than Tootsie Roll which means the market is more optimistic about Hershey than Tootsie Roll.

You all get the chance to play the role of financial analyst below. The Summary should be a comparison of each company's performance for each major category of ratios (Liquidity, Solvency, and Profitability) listed below. Focus on major differences as you compare each company's performance. A nice way to conclude is to state which company you feel is the better investment and why.

Liquidity: Tootsie Roll has the advantage for each of the liquidity ratios. Tootsie Roll has a large advantage in liquidity as evidenced by the $3.45 in current assets they have for every in $1 in current liabilities while Hershey has only 88 cents in current assets for every dollar in current liabilities. Tootsie Roll also has a better current cash debt coverage ratio. Tootsie Roll has a slight edge in inventory turnover and a considerable advantage in receivables turnover.

Solvency: Tootsie Roll has the advantage for each of the solvency ratios with the exception of free cash flow. Tootsie Roll can cover their interest expense 145 times with income before interest and taxes while Hershey can only cover their interest expense 4 times with their income before interest and taxes. Hershey has $336,875,000 in free cash flow while Tootsie Roll has $57,755,000 in free cash flow. Free cash flow can be used to undertake acquisitions, pay additional dividends, pay down debt, or by back stock.

Profitability: The results are mixed for the profitability ratios. Tootsie Roll has an edge in gross profit, profit margin, and return on assets. Tootsie Roll has a 10% profit margin versus 4% for Hershey. Hershey has a significant edge in asset turnover and return on common stockholders' equity. Hershey has a return on common stockholders' equity ratio of 34% compared to 8% for Tootsie Roll. Hershey also has a much larger payout (118% to 34%) and has a higher P/E ratio meaning the stock market is more optimistic about Hershey's future prospects.

Conclusion: Tootsie Roll is the safer investment when you examine the liquidity and solvency ratios; however, Hershey has the edge for two significant profitability ratios. These ratios are return on common stockholders' equity and the payout ratio. The stock market also is more optimistic about the future of Hersheys. That said, I would invest in Tootsie Roll because of their fiscal strength.

The Appendixes of your textbook and any information you use to profile the companies should be cited as a reference below.

Hershey's (2011). Retrieved March 11, 2011 from http://www.hersheys.com/pure-products.aspxHSY Profile (2011). Retrieved March 11, 2011 from http://finance.yahoo.com/q/pr?s=HSY+Profile

Tootsie Roll Industries (2011). Retrieved March 11, 2011 from http://www.tootsie.com/about.phpTR Profile (2011). Retrieved March 11, 2011 from http://finance.yahoo.com/q/pr?s=TR+Profile

Big Charts (2011). Retrieved March 11, 2011 from http://bigcharts.marketwatch.com/historical/default.asp?symb=hsy&closeDate=12%2F31%2F07&x=0&y=0

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Financial accounting: Tools for business decision making, 5th ed. Danvers, MA: John Wiley & Sons, Inc.

Project Template Comparing Tootsie Roll & Hershey(1)

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