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Analysis of Hershey and Tootsie Rolls

In: Business and Management

Submitted By kuvyoghmoob
Words 958
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Hershey’s Company and Tootsie Roll Industries are both makers of confectionary products, mainly chocolate and other candies. Both companies have been making these products since the early to middle 1890’s and market their products worldwide. Hershey’s is the larger company of the two. To show perspective of how much larger Hershey’s is, they had a net sale of over 5 billion dollars in 2008. Tootsie Roll’s net sales in 2008 were $492 million. However, I will be looking at and comparing their financial data from 2002 to 2004 to each other and to the 2004 industry average. Accounting ratios I will be looking at include liquidity ratios, solvency ratios, and profitability ratios.
Liquidity ratios show the ability of a company to pay back their short-term obligations. A few examples of these ratios are the current ratio, current cash debt coverage ratio, accounts receivable turnover ratio, average collection period, inventory turnover ratio, and days in inventory. Starting with the current ratio, I found that Hershey’s Co. did quite well in 2002 and 2003 but fell sharply in 2004. This was due to a large increase in liabilities in 2004 compared to the other years. The industry average for 2004 was .90 and their current ratio that year was .92 so they are just slightly above it. Tootsie Roll fared much better in all 3 years with its current ratio never going below 2.34. Companies with ratios over 2.0 are considered to be very stable in their short-term financial standing.
Another good indicator of liquidity is a company’s inventory turnover ratio and days in inventory. These show how quickly the company can sell their inventory and how long their inventory usually sits before being sold. The inventory turnover ratio for Hershey’s Co. stayed fairly level at 5.0-5.1 for all 3 years while Tootsie Roll started at a 5.2 in 2002, rose sharply in 2003 to 9.66 and dropped back to…...

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