Looking for a financial statement analyst (genius)
Title Page
| Go to the Course Resources page within the Course-Specific Resources section. The Course Resources page is under Course Home. | ||||||
| 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, and so forth. Please reference any websites that 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 and primarily sells their products in the United States, Canada, and Mexico. According to Yahoo Finance, Tootsie Roll has 2,000 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 2014 net product sales of $539.9 million. | ||||
| Hershey Company was founded by Milton S. Hershey in 1893 and is headquartered in Hershey, Pennsylvania. According to Yahoo Finance, Hershey has 20,800 full-time employees. Hershey is famous for Good & Plenty, Hershey Bar, Hershey's Kisses, Hershey's Bliss, Reese's, Rolo, Twizzlers, Almond Joy, Kit Kat, and Ice Breakers. Hershey had net product sales of $7.4 billion for 2014. |
Ratios
| Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab, and also include your commentary. | |||||||
| Tootsie Roll | Hershey | ||||||
| Earnings Per Share | As given on the income statement | $ 1.05 | $ 3.91 | ||||
| Current Ratio | Current assets | $264,621 | = | 4.11 | $2,247,047 | = | 1.16 |
| Current liabilities | $64,459 | $1,935,647 | |||||
| Gross (Profit) Margin Percentage | Gross margin | $198,962 | = | 36.9% | $3,336,166 | = | 45.0% |
| Sales revenue | $539,895 | $7,421,768 | |||||
| Rate of Return (Net Profit Margin) on Sales | Net income | $63,298 | = | 11.7% | $846,912 | = | 11.4% |
| Sales revenue | $539,895 | $7,421,768 | |||||
| Inventory Turnover | Cost of goods sold | $340,933 | 5.2 | $4,085,602 | 5.6 | ||
| Average inventory balance | $66,118 | times | $730,289 | times | |||
| Days' inventory outstanding (DIO) | 365 | 365 | = | 71 | 365 | = | 65 |
| Inventory turnover | 5.2 | days | 5.6 | days | |||
| Accounts Receivable Turnover | Sales revenue (simply assume all sales are credit sales) | $539,895 | = | 12.9 | $7,421,768 | = | 13.8 |
| Average accounts receivable balance | $41,987 | $537,426 | |||||
| Days' Sales Outstanding (DSO) | 365 | 365 | = | 28.4 | 365 | = | 26.4 |
| Accounts receivable turnover | 12.9 | days | 13.8 | days | |||
| Asset turnover | Sales revenue | $539,895 | = | 0.60 | $7,421,768 | = | 1.35 |
| Average total assets | $899,398 | $5,493,502 | |||||
| Rate of Return on Total Assets (ROA) | Rate of return on sales times asset turnover | = | 7.0% | = | 15.4% | ||
| Debt Ratio | Total Liabilities | $219,250 | = | 24.1% | $4,109,986 | = | 73.0% |
| Total Assets | $910,386 | $5,629,516 | |||||
| Times-Interest-Earned Ratio | Income from operations | $83,923 | = | 847.7 | 1,389,575 | = | 16.6 |
| Interest expense | $99 | 83,532 | |||||
| Dividend Yield | Dividend per share of common stock (from Yahoo Finance) | $0.36 | = | 1.1% | $2.33 | = | 2.6% |
| Market price per share of common stock (from Yahoo Finance) | $32.04 | $90.32 | |||||
| Rate of Return on Common Stockholders' Equity (ROE) | Net income - Preferred dividends | $63,298 | = | 9.2% | $846,912 | = | 54.0% |
| Average common stockholders' equity | $685,721 | $1,567,791 | |||||
| Free cash flow | Net cash provided by operating activities minus cash payments earmarked for investments in plant assets | = | $78,065 | = | $ 492,274 | ||
| Price-Earnings Ratio | Market price per share of common stock (from Yahoo Finance) | $30.65 | = | 29 | $103.93 | = | 27 |
| Earnings Per Share (from Yahoo Finance) | $1.05 | $3.91 |
Summary
| You 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 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 $4.11 in current assets for every dollar in current liabilities, while Hershey has only $1.16 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 its inventory 5.6 times to Tootsie Roll's 5.2 times, and Hershey turns over its accounts receivable 13.8 times to Tootsie Roll's 12.9 times. |
| Measuring Leverage - Overall Ability to Pay Debts: Tootsie Roll has significantly less debt than Hershey as evidenced by Tootsie Roll's 24.1% debt-to-asset ratio as compared to Hershey's 73% debt-to-asset ratio. Tootsie Roll can cover its interest expense 847.7 times with income before interest and taxes, while Hershey can only cover its interest expense 16.6 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 4 of the 5 profitability ratios. Hershey has a significant edge in return on common stockholders' equity, with a 54% return on common stockholders' equity, as compared to Tootsie Roll's 9.2% return on common stockholders' equity. Hershey has a higher gross profit rate (45.0%–36.9%), while Tootise Roll has a higher net profit margin ratio (11.7%–11.4%). Hershey also has a significant advantage for asset turnover (1.35–.60) and rate of return on total assets (15.4%–7.0%). |
| Analyzing Stock as an Investment: Hershey returns a 2.6% dividend yield to its investors, while Tootsie Roll's yield is 1.1%. Hershey has positive free cash flow of $492.2 million, while Tootsie Roll has positive free cash flow of $78.1 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 advantage for the turnover and 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
| Your textbook and any information that you use to profile the companies should be cited as a reference below. |
| Big Charts for Hershey (12/31/2014). Retrieved December 24, 2015 from http://bigcharts.marketwatch.com/historical/default.asp?symb=hsy&closeDate=12%2F31%2F14&x=0&y=0 |
| Big Charts for Tootsie Roll (12/31/2014). Retrieved December 24, 2015 from http://bigcharts.marketwatch.com/historical/default.asp?symb=tr&closeDate=12%2F31%2F14&x=0&y=0 |
| Harrison, W.T., Horngren C.T. & Thomas, C.W. (2015). Financial Accounting, 10th ed. Upper Saddle River, NJ: Pearson Education, Inc. |
| Hershey's 2014 Annual Report (2015). Retrieved December 24, 2015 from http://www.thehersheycompany.com/pdfs/PDF_Proxy%20Statement_2014.pdf |
| HSY Profile (2015). Retrieved December 24, 2015 from http://finance.yahoo.com/q/pr?s=HSY+Profile |
| HSY Stock Price (2015). Retrieved December 24, 2015 from http://finance.yahoo.com/q?s=hsy&ql=1 |
| Tootsie Roll Industries 2014 Annual Report (2015). Retrieved December 24, 2015 from http://tootsie.com/financials/ |
| TR Profile (2015). Retrieved December 24, 2015 from http://finance.yahoo.com/q/pr?s=TR+Profile |
| TR Stock Price (2015). Retrieved December 24, 2015 from http://finance.yahoo.com/q?s=TR&ql=1 |