Hershey Foods vs. Tootsie Rolls
Investment: Heshery Foods versus Tootsie Rolls Financial Comparison A comparison of 2004 Hershey’s and Tootsie Roll, questions needed to determine which company is better off: Are the company’s operations profitable? To consider this I will be looking at the Income Statement. If the company’s revenue exceeds its expenses it will report net income or will report a net loss. This will report on the success or failure of the company’s operation by reporting its revenue and expenses. Hershey Foods reports a net income of $590,879 and Tootsie Roll Industries report a net income of $64,174.
Overall, both company’s report a net gain. However, Hershey Foods net income is larger than that of Tootsie Roll Industries by $526,705. Does the company rely primarily on debit or stockholders’ equity to finance its assets? To consider this I will be looking at Balance sheet. Comparing the amount of debt versus the amount of stockholders’ equity to determine whether the company relies more on creditors or owner for it financing. This reports the company’s resource and claims to those resources. The two types of claims are liabilities and stockholders’ equity.
Hershey Foods reports a balance sheet of assets of $3,797,531, liabilities of $2,708,229 and stockholders’ equity of $1,089,302. Tootsie Roll Industries reports a balance sheet of assets of $811,753, liabilities $241,574 and stockholders’ equity $570,179. Hershey Food relies more on creditors versus Tootsie Roll whom relies on its own financing. How does the company’s earnings performance suggest performance? A high measure suggests improved performance and low measure suggests weak performance. Hershey Foods reports Earnings per share and earnings of $2. 30 versus Tootsie Roll Industry earning of $1. 3. Overall, Hershey Foods has a higher performance over Tootsie Roll Industry. Can the company meet its near-term obligations? To consider this I will be looking at current assets and current liabilities. Higher ratio suggests favorable liquidity. Hershey Foods current assets are $3,797,531 and current liabilities are $2,708,229 which Current ratio is 1. 4:1. This ratio shows a favorable liquidity. As for Tootsie Roll the current assets are $811,753 and current liabilities are $241,574 this gives the current ratio of 3. 4:1 suggest a favorable liquidity.
In short Tootsie Roll Industries has a more favorable liquidity. Can the company meet its long-term obligation? To consider this I will look at total debt and total assets. By looking at this as a ratio lower value suggests favorable solvency. Hershey Foods Debt to total assets ratio is 74 % represents an unfavorable solvency. As for Tootsie Roll Industries ratio is 29. 8% represents a favorable solvency. Overall, Tootsie Roll Industries has a more favorable solvency over Hershey Foods. How much cash did the company generate to expand operation, pay off debts or distribute dividends?
To consider this I looked at free cash flow which comes from cash provided by operation activities, cash spent, on fixed assets and cash dividends. The amount of free cash flow indicates greater potential to finance new investment and pay additional dividends. Hershey Foods free cash flow is $56,989, this is low and indicates low potential to finance new investment and pay additional dividends. As for Tootsie Roll Industries $54,837 is also low. Overall Hershey Foods has a higher amount of free cash flow. Is the price of goods keeping pace with changes in the cost of inventory?
To consider this we need Gross profit and net sales. The ratio suggests the average margin between selling price and inventory cost is increasing. Too high of a margin results in lost of sale. Hershey Foods gross profit is 20. 4%, this percent is low which indicates a gain of sales. As for Tootsie Roll Industries the percent is 41. 8% which indicates in a lost of sales. Overall, Hershey Foods has a lower lost of sales. Is the company maintaining an adequate margin between sales and expenses? To consider this we need to look at net income and net sales.
A higher value suggests favorable return on each dollar of sales. Hershey Foods profit margin ratio 13. 3% represents a low favorable return on each dollar of sales. As for Tootsie Roll Industries the ratio is 15. 3% which is low. However, Hershey Foods ratio is less favorable than Tootsie Roll Industries. How long is an item in inventory? To consider this we need cost of goods sold; beginning and ending inventory. The higher the ratio or lower average days in inventory suggest that management is reducing the amount of inventory on relative to sales.
Hershey Foods inventory ratio is 4. 80 and days in inventory are 76 days. As for Tootsie Roll Industries the inventory ratio 4. 5 and days in inventory is 81 days. Both represents that management is not reducing the amount of inventory compare to sales. Overall, Hershey Foods is better of then Tootsie Roll. Are collections being made in time fashion? To consider this we need net credit sales and average receivable balance. This ratio indicates average collection period should be consistent with corporate credit policy.
An increase suggests a decline in financial health of customers. Hershey Food Receivable turnover ratio is 10. 8 and average collection period is 33. 8. As for Tootsie Roll the ratio is 10. 8 and average collection period is 33. 8. Overall, both companies have low ratios which indicate there is no decline in financial health of customers. Is the company using its assets effectively? To consider this we need net income and average assets. The ratio represents if there is a high values which suggests favorable efficiency-use of assets.
Hershey Foods return on asset ratio is 0. 16 as for Tootsie Roll the ratio is 0. 08. Both represent that there is not a favorable efficiency in the use of assets. Overall, Hershey is better off then Tootsie Roll. How effective is the company at generating sales its assets? To consider this we need net sales and average total assets. The ratio indicates the sales dollars generated per dollar of assets. A high value indicates the company effectiveness in using its resource to generate sales. Hershey Foods asset turnover ratio is 1. 17 as for Tootsie Roll is 0. 2. Both are low which represents ineffectiveness in using its resource to generate sales. Overall, Hershey is better off than that of Tootsie Roll. Can the company meet its obligations in the long-term? To consider this we need interest expense and net income before interest and taxes. High ratio indicates ability to meet interest payment as scheduled. Hershey Foods Time interest earned ratio is 1. 02 as for Tootsie Roll the ratio is 193. The low ratio of Hershey indicates that the company does not have the ability to meet interest payment as scheduled.
However, Tootsie roll has the ability to meet interest payment as scheduled. Tootsie is better off. What portion of its earning does the company pay out in dividends? To consider this we need net income and total cash dividends on common stock. A low ratio suggests the company is retaining its earning for investment in future growth. Hershey Foods Payout ratio is 0. 36 as for Tootsie Roll is 0. 23. Both have low ratios which indicate that they are retaining its earning for investment in future growth. Overall, Tootsie Roll ratio is better off than Hershey Foods.
Is the company generating sufficient cash provided by operating activities to meet current obligations? To consider this we must look at cash provided by operating activities and average current liabilities. A high value suggests good liquidity. The numerator contains a flow measure; it provides a good supplement to the current ration Hershey Foods current cash debt coverage ratio is 0. 29, as for Tootsie Roll 0. 32. Both companies have a low liquidity. Overall, Tootsie is better off. Is the company generating sufficient cash provided by operating activities to meet its long-term obligations?
To consider this we need to look at cash provided by operating activities and average total liabilities. A high value indicates the company is solvent; that is, it will meet its obligation in the long-term. Hershey Foods cash debt coverage ratio is 0. 3 as for Tootsie roll the ratio is 0. 3. Both companies are low which indicates that both companies are not solvent to meet long-term obligations. Neither company has its advantages. To conclusion I believe that Tootsie Roll is better off then Hershey Foods. The best chose for investment is Tootsie Roll.