The financial statements of the hershey company and tootsie roll are presented below.

Title Page

Go to Doc Sharing for the detailed Course Project instructions and grading rubric.

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.

Profiles

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 for the Profiles on the Bibliography tab.

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. According to Yahoo Finance, 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 2012 net product sales of $549.9 million.

Hershey Company was founded by Milton S. Hershey in 1893 and is headquartered in Hershey, Pennsylvania. According to Yahoo Finance, Hershey had 12,100 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 $6.6 billion for 2012.

Ratios

Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab and also include your commentary.

The financial statements used to calculate these ratios are available at each company's web site.

Tootsie Roll Hershey's Interpretation and comparison between the two companies' ratios (reading the Appendix of Chapter 13 will help you prepare the commentary).

The comparison of the ratios is an important part of the project. A good approach is to briefly explain what the ratio tells us. Indicate whether a higher or lower ratio is better. Then compare the two companies on this basis. Remember—each ratio below requires a comparison.

Earnings per Share of Common Stock (basic - common) As given in the income statement $ 0.89 $ 3.01

Current Ratio Current assets $197,241 = 3.25 $2,113,485 = 1.44

Current liabilities $60,765 $1,471,110

Gross Profit Margin Gross profit $183,321 = 33.3% $2,859,882 = 43.0%

Net Sales $549,870 $6,644,252

Rate of Return (Net Profit Margin) on Sales Net Income $52,004 = 9.5% $660,931 = 9.9%

Net Sales $549,870 $6,644,252

Inventory Turnover Cost of Goods Sold $365,573 5.5 $3,784,370 5.9

Average Inventory $67,072 times $641,108 times

Days' inventory outstanding (DIO) 365 days 365 = 67 365 = 62

Inventory turnover 5.5 days 5.9 days

Accounts Receivable Turnover Net credit sales $549,870 = 13.1 $6,644,252 = 15.4

Average Net Accounts Receivable $42,002 $430,441

Days' sales outstanding (DSO) 365 365 = 27.9 365 = 23.6

Receivable Turnover Ratio 13.1 days 15.4 days

Asset turnover Net Sales $549,870 = 0.65 $6,644,252 = 1.45

Average Total Assets $852,297 $4,580,967

Rate of Return on Total Assets (ROA) Rate of return on sales times Asset Turnover $52,004 = 6.1% $660,931 = 14.4%

$852,297 $4,580,967

Debt Ratio Total Liabilities $196,922 = 23.3% $3,706,466 = 84.0%

Total Assets $846,737 $4,412,199

Times-Interest-Earned Ratio Net Income + Int Expense + Tax Expense $74,301 = 542.3 1,111,148 = 11.6

Interest Expense $137 95,569

Dividend Yield Dividend per share of common stock (Yahoo Finance 11/1/2013) $0.32 = 1.0% $1.94 = 2.0%

Market price per share of common stock (Yahoo Finance 11/1/2013) $31.72 $98.85

Rate of Return on Common Stockholders' Equity (ROE) Net income - Preferred dividends $52,431 = 8.0% $660,931 = 68.5%

Average common stockholders' equity $657,875 $964,658

Free cash flow Net cash provided by operating activities minus cash payments earmarked for investments in plant assets $93,033 = $93,033 $836,100 $ 836,100

=

Price/Earnings Ratio (Multiple) 12/31/12 $25.92 = 29 $72.22 = 24

(please see the instructions for the dates to use for this ratio) EPS as of 12/31/2012 $0.89 $3.01

Summary

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.

Measuring Ability to Pay Current Liabilities: Tootsie Roll has the advantage for the current ratio. Tootsie Roll has $3.25 in current assets for every dollar in current liabilities while Hershey has only $1.44 in current assets for every dollar in current liabilities.

Measuring Turnover: Hershey has the advantage for the inventory turnover and accounts receivable turnover ratios. Hershey turns over their inventory 5.9 times to Tootsie Roll's 5.5 times and Hershey turns over their accounts receivable 15.4 times to Tootsie Roll's 13.1 times.

Measuring Leverage- Overall Ability to Pay Debts: Tootsie Roll has significantly less debt than Hershey as evidenced by Tootsie Roll's 23% debt to asset ratio as compared to Hershey's 84% debt to asset ratio. Tootsie Roll can cover their interest expense 504 times with income before interest and taxes while Hershey can only cover their interest expense 11 times with their income before interest and taxes. Tootsie Roll has the advantage for each of these ratios.

Measuring Profitability: Hershey has the advantage for each of the profitability ratios. Hershey has a significant edge in return on common stockholders' equity with a 68.5% return on common stockholders' equity as compared to Tootsie Roll's 8.0% return on common stockholders' equity. Hershey also has a higher gross profit rate (43.0% to 33.3%) and higher profit margin ratio (9.9% to 9.5%).

Analyzing Stock as an Investment: Hershey returns a 2% dividend yield to their investors while Tootsie Roll's yield is 1%. Hershey has positive free cash flow of $836.1 million while Tootsie Roll has positive free cash flow of $93 million. Free cash flow can be used to undertake acquisitions, pay additional dividends, pay down debt, or buy back stock.

Conclusion: Tootsie Roll is the safer investment when you examine their ability to pay current liabilities and overall liabilities; however, Hershey has the edge for all of the profitability ratios. For the conservative investor, Tootsie Roll looks like the way to go because of their strong current and times-interest-earned ratios. For the growth-oriented investor, Hershey is the way to go because of their stronger profitability ratios and large amount of free cash flow.

Bibliography

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

Big Charts for Hershey (2013). Retrieved October 29, 2013 from http://bigcharts.marketwatch.com/historical/default.asp?symb=HSY&closeDate=12%2F31%2F2012&x=0&y=0

Big Charts for Tootsie Roll (2013). Retrieved October 29, 2013 from http://bigcharts.marketwatch.com/historical/default.asp?symb=TR&closeDate=12%2F31%2F12&x=12&y=19

Harrison, W.T., Horngrenm C.T. & Thomas, C.W. (2013). Financial Accounting, 9th ed. Upper Saddle River, NJ: Pearson Education, Inc.

Hershey's 2012 Annual Report (2013). Retrieved October 29, 2013 from http://www.thehersheycompany.com/assets/pdfs/hersheycompany/TheHersheyCompany_10K_20130222.pdf

HSY Profile (2013). Retrieved October 31, 2013 from http://finance.yahoo.com/q/pr?s=HSY+Profile

HSY Stock Price (2013). Retrieved November 1, 2013 from http://finance.yahoo.com/q?s=hsy&ql=1

Tootsie Roll Industries 2012 Annual Report (2013). Retrieved October 29, 2013 from http://www.tootsie.com/financial/fin_247.pdf

TR Profile (2013). Retrieved October 31, 2013 from http://finance.yahoo.com/q/pr?s=TR+Profile

TR Stock Price (2013). Retrieved November 1, 2013 from http://finance.yahoo.com/q?s=TR&ql=1

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