Financial Analysis of Hershey and Tootsie Roll Keller University ACCT-504 Instructor:

Financial Analysis of Hershey and Tootsie Roll

Introduction

Tootsie Roll and Hershey are two similar companies with a similar product offering, but they operate on entirely different scales. In an effort to determine the better investment of the two companies we will utilize multiple financial analysis ratios to gauge the health of the respective companies in terms of liquidity (the ability to pay short-term liabilities and respond to opportunities), solvency (the long-term viability of the company) and profitability (the efficiency at which the can turn it’s resources into profits). However, the snapshot picture of health that a single years worth of financial statements provide is not enough. Below we have offered a horizontal analysis of the respective companies to show the change in their health from 2012 to 2013 and analyzed the two companies against each other to show why we recommend Hershey as the better investment.

Liquidity and Solvency

Current Ratio

The current ratio is defined as the current assets divided by the current liabilities for a given period. This ratio is important because it helps measure a company’s ability to pay their current liabilities with their current assets. This shows helps determine the liquidity of the companies and their ability to respond to market opportunities. Tootsie Roll has a current ratio of 3.25 in 2012 and 3.99 in 2013(an 18.5 percent increase). Hershey, on the other hand, has a current ratio of 1.44 and 1.77 (also an 18.5 percent increase) respectively. Both companies have increased year over year. As the current ratio shows, the Tootsie maintains a healthier ratio, but both have improved at the same rate.

Debt to Asset Ratio