Financial Analysis: Hershey Corp. & Tootsie Roll Industries

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Financial Analysis: Hershey Corp. & Tootsie Roll Industries

Financial Analysis: Hershey Corp. & Tootsie Roll Industries
Hershey and Tootsie Roll are both companies in the confection industry. We compared both companies for the years 2004, 2005, and 2006 against each other and against the industry averages in order to make a decision about which company we would choose to invest in. The comparisons we used to make our decision were ratios for liquidity, solvency, and profitability. As a result of our analyses, we have chosen the Hershey Company.
Liquidity ratios "measure short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash" (Kimmel Weygandt, & Kieso, 2007, p. 74). The
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Tootsie Roll has a better current ratio, accounts receivable turnover, average collection period, inventory turnover, and days in inventory than Hershey. However, the overall liquidity of Hershey does not deter us in our choice to invest in Hershey. Hershey has a better current cash debt coverage ratio than Tootsie Roll. Hershey is able to generate sufficient cash funds to meet its current debt obligations.
Solvency ratios "measures the ability of the company to survive over a long period of time" (Kimmel et al, 2007, 74). "It is the ability to pay the interest as it comes due and to repay the balance of a debt due to maturity" (Kimmel et al, 2007, p.60). When a company has a low solvency ratio it has greater odds of defaulting on its debt obligations.
Debt-to-Total Assets ratio
Debt-to-total assets ratio "measures the percentage of total financing provided by creditors; computed as total debt divided by total assets" (Kimmel et al, 2007, p. 74). It is the percentage of investing every dollar for the company's assets to sustain the company revenue growth. With this ratio a lower value suggests the company has favorable solvency while a high ratio is the opposite.
Hershey decreased from 140.22% in 2004 to 119.67% in 2006. Tootsie Roll declined from 29.76% in 2004 to 20.33% in 2006. We could not locate an industry average against which to compare both companies. Both companies'