When evaluating the liquidity of Tootsie and Hershey, both organizations hold fairly strong positions with respect to its ability to meet their current and expected short term, less than one year, obligations. Upon reviewing the current ratio, Tootsie holds a very strong position with over 2 times the current assets versus current liabilities. While the figure is favorable, it does suggest perhaps that their ratio may be too high and that they are not efficiently using its current assets. Though, they have be specifically improving on this aspect since their ratio did decline from 3.9 in 2003 to 2.3 in 2004. Hershey’s current ratio is not nearly as strong as Tootsie’s, coming in at .93 in 2004 down from 1.93 in 2003 but in comparison to the industry average of 1.1 it is still within an acceptable range but has steadily decreased since 2002 when it was 2.3. This may be suggestive of a decision to purposely reduce their liquidity. This leads into the current cash debt coverage ratio analysis, which helps adjust for the current ratio only calculating year end figures, and utilizes the company’s cash provided by opertions to account for the entire year. Tootsie’s current cash debt coverage ratio is more favorable coming in at 1.05 versus Hershey’s ratio of .85. However, both exceed the acceptable level recommended of .40, showing both have adequate liquid positions.
In further reviewing the liquidity of both company’s and looking at the accounts receivable turnover ratio, which assesses the ability to covert receivables into cash, Tootsie holds a much more favorable position at 18.04 in comparison to Hershey’s 10.85. Additionally, Tootsie possesses a better average collection period coming in at just over 20 days to Hershey’s 33.6 days, showing they are more effective with their credit and collection policies. Lastly, when reviewing the inventory turnover and days in