Fi504 Course Project

Fi504 Course Project

Tootsie Roll Industries, Inc. and its subsidiaries manufacture and sell confectionery products in the United States, Canada, and Mexico. It sells its products under various names. The company markets its products to wholesale distributors of candy and groceries, supermarkets, variety stores, dollar stores, chain grocers, drug chains, discount chains, cooperative grocery associations, warehouse and membership club stores, vending machine operators, and the U. S. military and fund-raising charitable organizations. Tootsie Roll Industries was founded in 1896 and is based in Chicago, Illinois. The Hershey Company, together with its subsidiaries, engages in manufacturing, marketing, selling, and distributing various chocolate and confectionery products, pantry items, and gum and mint refreshment products worldwide. It offers various chocolate and confectionery products as well as various snack products, a line of refreshment products, such as mints, chewing gum, and bubble gum, and a line of pantry items. It sells its products through sales representatives and food brokers, primarily to wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires, department stores, and natural food stores. The company was founded in 1893 and is based in Hershey, Pennsylvania.
Tootsie Roll Industries Ratios
Hershey Foods Corporation Ratios
Interpretation and Comparison between the two companies' ratios Earnings per share serves as an indicator of a company's profitability. The EPS is a good measure of profitability and when compared with EPS of similar companies and it gives a view of the comparative earnings or earnings power of the company. The EPS of Tootsie Roll Industries of $0.94 is slightly lower than the EPS of Hershey Foods Corporation's $0.96. Both companies generate a similar EPS but Tootsie does it with much less capital, implying that Tootise is much more efficient than Hershey because it can provide its shareholders with the same amount of EPS but with much less equity.
Earnings per Share
0.94
0.96
Current Ratio
3.45
0.88
The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities with its short-term assets. The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. It can be inferred (analyzed) that Tootsie has a much strong liquidity than Hershey as its current ratio is 3.45 as compare to 0.88 of Hershey. It is important to note that a very high ratio of current assets to current liabilities may be indicative of slack management practices, as it might signal excessive inventories for the current requirements and poor credit management in terms of overextended accounts receivables. Therefore a company should have a reasonable current ratio. Gross profit rate is a measure of profitability of a business. It is a measure of the ability to pay overhead since all costs associated with obtaining and selling are subtracted out. Gross profit rate may indicate to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. Gross profit ratio of Tootsie is 33.50% while the gross profit ratio of Hershey is 32.98%. Gross profit rate of Tootsie is slightly better showing that Tootsie is slightly more profitable and efficient than Hershey. The profit margin ratio is indicative of management’s ability to operate the business with sufficient success not only to recover from revenues of the period, the cost of merchandise or services, the expenses of operating the business and the cost of the borrowed funds, but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. The ratio of net profit to sales essentially expresses the cost price effectiveness of the operation. Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication that costs need to be under better control. Profit margin of Tootsie is much better than Hershey as it has profit margin of 10.48% as compare to 4.33%. So for every dollar of sales that Tootsie generates, $0.1048 goes to the bottom line (net income) while Hershey contributes only $.0433 per dollar to its net income. Tootsie is a much more efficient and effective company. The Inventory turnover rate measures how quickly inventory is sold. nventory turnover is a measure of how often within a year that inventory is sold and replaced. It is a test of efficient inventory management. A considerable amount of a company’s capital is tied up in the financing of inventory. The inventory turnover rate measures how many times a company’s inventory has been sold during the year. This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. Very high inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall. Both companies have similar similar efficiency and a high rate of sales. The day’s sales in inventory ratio is closely related to inventory turnover. It quantifies how long your inventory remains in storage. A high number of days inventory indicates that there is a lack of demand for the product being sold. A low days inventory ratio (inventory holding period) may indicate that the company is not keeping enough stock on hand to meet demands. The days in inventory shows how many days the inventory stays on hand, so a moderately low value is better than high value. Both companies have similar figures indicating that both companies have good stock on hand with good demand for product.
Gross Profit Rate (%)
33.50
32.98
Profit Margin Ratio (%)
10.48
4.33
Inventory Turnover Rate
5.40
5.31
Days in Inventory
67.59
68.76
Earnings per Share Current Ratio Gross Profit Rate Profit Margin Ratio Inventory Turnover Rate Days in Inventory
Tootsie Roll Industries Ratios Net Income / Average Outstanding Common Shares Current Assets / Current Liabilities Gross profit / Net Sales Net Income / Net Sales Cost of Goods Sold / Average Inventory 365 / Inventory Turnover Ratio Tootsie Roll Industries (in thousands)
Hershey Foods Corporation Ratios Net Income / Average Outstanding Common Shares Current Assets / Current Liabilities Gross profit / Net Sales Net Income / Net Sales Cost of Goods Sold / Average Inventory 365 / Inventory Turnover Ratio Hershey Foods Corporation (in thousands)
Interpretation and Comparison between the two companies' ratios x x x x x x
Net Income Average Outstanding Common Shares Current Assets Current Liabilities Gross Profit (product) Net product Sales Cost of Goods Sold Average Inventory
51625 ? 199726 57972 165047 492742 327695 60679.5
214154 ? 1426574 1618770 1631569 4946716 3315147 624502.5
Tootsie Roll Industries Ratios
Hershey Foods Corporation Ratios
Interpretation and Comparison between the two companies' ratios This ratio measures whether the amount of resources tied up in receivables is reasonable and whether or not the company has been efficient in converting receivables into cash. A high ratio is indicative of shorter time lag between credit sales and cash collection. By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm. Tootsie's ratio is 14.61 compared to 9.80 of Hershey. It shows that the management of Tootsie is much more efficient in the collection of accounts receivable. Due to the size of transactions, most businesses allow customers to purchase goods or services via credit, but one of the problems with extending credit is not knowing when the customer will make cash payments. Therefore, possessing a lower average collection period is seen as optimal, because this means that it does not take a company very long to turn its receivables into cash. Ultimately, every business needs cash to pay off its own expenses. A long average collection period indicates poor credit control. Tootsie’s average collection period is 24.98 days compared to 37.26 days for Hershey. This shows Tootsie is more efficient in collecting cash payments there being in a better position to pay off its expenses. This ratio is useful to determine the amount of sales that are generated from each dollar of assets. Companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. The asset turnover ratio measures the efficiency of a firm in managing and utilizing its assets. The higher the turnover the more efficient is the management and utilization of assets. Tootsie’s asset turnover seems to be relatively low compared to Hershey’s, meaning that it makes a high profit margin on its products as well as efficiently managing its assets. This is an important ratio for companies deciding whether or not to initiate a new project. The basis of this ratio is that if a company is going to start a project they expect to earn a return on it, ROA is the return they would receive. Simply put, if ROA is above the rate that the company borrows at then the project should be accepted, if not then it is rejected. Return on assets ratio is considered to be the best measure of profitability in order to assess the overall performance of the business. It indicates how well the management has used the investment made by owners and creditors into the business. It is commonly used as a basis for various managerial decisions. As the primary objective of business is to earn profit, the higher the return on assets, the more efficient the firm is in using its funds. The ratio can be found for a number of years so as to find a trend as to whether the profitability of the company is improving or declining. Tootsie’s ROA of 6.44% is slightly better than the return on assets of 5.10% of Hershey showing that Tootsie is using its assets slightly more effectively than Hershey. This ratio expresses the relation of liabilities with assets. It shows that how much liabilities are covered the portion of assets. Tootsie’s debt/asset ratio is fairly low at 0.21, meaning that its assets are financed more through equity rather than debt. Companies with higher ratios such as Hershey with 0.85, are placing themselves at risk, especially in an increasing interest rate market. Creditors are bound to get worried if the company is exposed to a large amount of debt and may demand that the company pay some of it back. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is currently paying to meet its debt obligations. This ratio shows that how many times the interest amount is covered by firm's earnings before interest and tax. The comparison shows that the Tootsie has a much lower interest on debt as compared to Hershey. Tootsie however might be seen as having too high of a ratio indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects (such as inventing that 3 course meal in a stick of gum from Willy Wonka).
Receivable Turnover Ratio
14.61
9.80
Average Collection Period
24.98
37.26
Assets Turnover Ratio
0.61
1.18
Return on Assets Ratio (%)
6.44
5.10
Debt to Total Assets Ratio
0.21
0.85
Times Interest Earned Ratio
144.70
3.87
Receivable Turnover Ratio Average Collection Period Assets Turnover Ratio Return on Assets Ratio (%) Debt to Total Assets Ratio Times Interest Earned Ratio
Tootsie Roll Industries Ratios Net Credit Sales / Average Accounts Receivable (Total amount of days in period*Average amount of accounts receivables) / Total amount of net credit sales during period Net Sales / Average Total Assets Net Income / Average Total Assets * 100 Total Liabilities / Total Assets (Net Income + Interest Expense + Tax Expense) / Interest Expense
Hershey Foods Corporation Ratios Net Credit Sales / Average Accounts Receivable (Total amount of days in period*Average amount of accounts receivables) / Total amount of net credit sales during period Net Sales / Average Total Assets Net Income / Average Total Assets * 100 Total Liabilities / Total Assets (Net Income + Interest Expense + Tax Expense) / Interest Expense
Interpretation and Comparison between the two companies' ratios x x x x x x
Net Income Net Credit Sales Average Accounts Receivable Average Total Assets Interest Expense Total Assets Total Liabilities Tax Expense
Tootsie Roll Industries (in thousands) 51625 492742 33723 802182 537 812725 174495 25542
Hershey Foods Corporation (in thousands) 214154 4946716 504979 4202339 118585 4247113 3623593 126088
Net Income Net Credit Sales Average Accounts Receivable Average Total Assets Interest Expense Total Assets Total Liabilities Tax Expense
Tootsie Roll Industries Ratios
Hershey Foods Corporation Ratios
Interpretation and Comparison between the two companies' ratios Payout ratio is the amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings. For example, a very low payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends. The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend because smaller dividends are easier to pay out than larger dividends. The comparison shows that the Hershey company has good payout ratio as compared to the Tootsie, because Hershey pays more than its earning and Tootsie has retained big portion of earnings per share. Tootsie is more focused on retaining its earnings while Hershey's dividends are less secure because they are paying out more than they are earning. Return on Equity is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry. This is probably the single most important ratio to judge whether or not a company has earned a satisfactory return for its equity-holders. A comparison of the two companies shows that Hershey gives a much higher return than Tootsie (33.56% vs. 8.14%). This means that Hershey is much more attractive to an investor as it generates much more profit per dollar invested. Free cash flow is a measure of financial performance. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. Some believe that Wall Street focuses myopically on earnings while ignoring the "real" cash that a firm generates. Earnings can often be clouded by accounting gimmicks, but it's tougher to fake cash flow. For this reason, some investors believe that FCF gives a much clearer view of the ability to generate cash (and thus profits). Hershey's high free cash flow shows that it is in a better state to pursue new opportunities because it has more cash on hand. The Current Cash Debt Coverage ratio measures a company's ability to repay their current debt. This ratio looks at the net cash provided by operating activities. If the number is below 1 that means the company is unable to pay their current debt. If it is over 1 that means the company has excess money and is a good investment. Tootsie's ratio of greater than 1 shows that it much more liquid than Hershey. Tootsie can cover all of its current liabilities while Hershey cannot. The Cash Debt Coverage ratio shows the percent of debt that current cash flow can retire. A cash debt coverage ratio of 1:1 (100%) or greater shows that the company can repay all debt within one year. This ratio is used to evaluate the solvency position of companies. A high ratio is better because with a high ratio, a company shows that it is a better solvency position to cover all liabilities by cash provided by operating activities. Tootsie's higher ratio means that it is a much more solvent position than Hershey. The Price-Earnings Ratio is a valuation ratio of a company's current share price compared to its per-share earnings. in general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. Hershey's higher ratio means that investors are expecting Hershey to have higher earnings growth in the future when compared to Tootsie.
Payout Ratio (%)
34.04
118.23
Return on Common Stockholders' Equity Ratio (%)
8.14
33.56
Free Cash Flow
28777.00
336875.00
Current Cash Debt Coverage ratio
1.50
0.51
Cash Debt Coverage ratio
0.54
0.22
Price/Earnings Ratio
29.17
41.04
Payout Ratio (%) Dividends per Share Earnings per Share Return on Common Stockholders' Equity Ratio (%) Free Cash Flow Current Cash Debt Coverage ratio Cash Debt Coverage ratio Price/Earnings Ratio
Tootsie Roll Industries Ratios (Dividends per Share) / (Earnings per Share) *100 (Total Dividends Paid - Preferred Stock Dividends) / (Average # of Common Shares Outstanding) (Net Income - Preferred Stock Dividends) / (Average # of Common Shares Outstanding) (Net Income - Preferred Stock Dividends) / (Average Common Stockholders' Equity)*100 (Cash provided by Operating Activities) – (Capital Expenditures) – (Cash Dividends) (Cash provided by Operations) / (Average Current Liabilities) (Cash provided by Operations) / (Average Total Liabilities) (Market price per Share) / (Earnings per Share)
Hershey Foods Corporation Ratios (Dividends per Share) / (Earnings per Share) *100 (Total Dividends Paid - Preferred Stock Dividends) / (Average # of Common Shares Outstanding) (Net Income - Preferred Stock Dividends) / (Average # of Common Shares Outstanding) (Net Income - Preferred Stock Dividends) / (Average Common Stockholders' Equity)*100 (Cash provided by Operating Activities) – (Capital Expenditures) – (Cash Dividends) (Cash provided by Operations) / (Average Current Liabilities) (Cash provided by Operations) / (Average Total Liabilities) (Market price per Share) / (Earnings per Share)
Interpretation and Comparison between the two companies' ratios x x x x x x x x
Total Cash Dividends Paid Preferred Stock Dividends Average # of Common Shares Outstanding Net Income Dividends per Share Earnings per Share Average Common Stockholders' Equity Cash provided by Operating Activities Capital Expenditures Average Current Liabilities Average Total Liabilities Market Price per Share (last day 2007)
Tootsie Roll Industries (in thousands) 46520 0 ? 51625 0.32 0.94 634500.5 90064 14767 60091.5 167726.5 27.42
Hershey Foods Corporation (in thousands) 252263 0 ? 214154 1.135 0.96 638172.5 778836 189698 1536154 3548867.5 39.4
Total Cash Dividends Paid Preferred Stock Dividends Average # of Common Shares Outstanding Net Income Dividends per Share Earnings per Share Average Common Stockholders' Equity Cash provided by Operating Activities Capital Expenditures Average Current Liabilities Average Total Liabilities Market Price per Share (last day 2007)
Tootsie Roll Industries Ratios
Hershey Foods Corporation Ratios
Earnings per Share
0.94
0.96
Current Ratio
3.45
0.88
Gross Profit Rate (%)
33.50
32.98
Profit Margin Ratio (%)
10.48
4.33
Inventory Turnover Rate
5.40
5.31
Days in Inventory
67.59
68.76
Receivable Turnover Ratio
14.61
9.80
Average Collection Period
24.98
37.26
Assets Turnover Ratio
0.61
1.18
Return on Assets Ratio (%)
6.44
5.10
Debt to Total Assets Ratio
0.21
0.85
Times Interest Earned Ratio
144.70
3.87
Payout Ratio (%)
34.04
118.23
Return on Common Stockholders' Equity Ratio (%)
8.14
33.56
Free Cash Flow
28777.00
336875.00
Current Cash Debt Coverage ratio
1.50
0.51
Cash Debt Coverage ratio
0.54
0.22
Price/Earnings Ratio
29.17
41.04
Interpretation and Comparison between the two companies' ratios Earnings per share serves as an indicator of a company's profitability. The EPS is a good measure of profitability and when compared with EPS of similar companies and it gives a view of the comparative earnings or earnings power of the company. The EPS of Tootsie Roll Industries of $0.94 is slightly lower than the EPS of Hershey Foods Corporation's $0.96. Both companies generate a similar EPS but Tootsie does it with much less capital, implying that Tootise is much more efficient than Hershey because it can provide its shareholders with the same amount of EPS but with much less equity. The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities with its short-term assets. The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. It can be inferred (analyzed) that Tootsie has a much strong liquidity than Hershey as its current ratio is 3.45 as compare to 0.88 of Hershey. It is important to note that a very high ratio of current assets to current liabilities may be indicative of slack management practices, as it might signal excessive inventories for the current requirements and poor credit management in terms of overextended accounts receivables. Therefore a company should have a reasonable current ratio. Gross profit rate is a measure of profitability of a business. It is a measure of the ability to pay overhead since all costs associated with obtaining and selling are subtracted out. Gross profit rate may indicate to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. Gross profit ratio of Tootsie is 33.50% while the gross profit ratio of Hershey is 32.98%. Gross profit rate of Tootsie is slightly better showing that Tootsie is slightly more profitable and efficient than Hershey.
The profit margin ratio is indicative of management’s ability to operate the business with sufficient success not only to recover from revenues of the period, the cost of merchandise or services, the expenses of operating the business and the cost of the borrowed funds, but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. The ratio of net profit to sales essentially expresses the cost price effectiveness of the operation. Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication that costs need to be under better control. Profit margin of Tootsie is much better than Hershey as it has profit margin of 10.48% as compare to 4.33%. So for every dollar of sales that Tootsie generates, $0.1048 goes to the bottom line (net income) while Hershey contributes only $.0433 per dollar to its net income. Tootsie is a much more efficient and effective company. The Inventory turnover rate measures how quickly inventory is sold. nventory turnover is a measure of how often within a year that inventory is sold and replaced. It is a test of efficient inventory management. A considerable amount of a company’s capital is tied up in the financing of inventory. The inventory turnover rate measures how many times a company’s inventory has been sold during the year. This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. Very high inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall. Both companies have similar similar efficiency and a high rate of sales. The day’s sales in inventory ratio is closely related to inventory turnover. It quantifies how long your inventory remains in storage. A high number of days inventory indicates that there is a lack of demand for the product being sold. A low days inventory ratio (inventory holding period) may indicate that the company is not keeping enough stock on hand to meet demands. The days in inventory shows how many days the inventory stays on hand, so a moderately low value is better than high value. Both companies have similar figures indicating that both companies have good stock on hand with good demand for product.
This ratio measures whether the amount of resources tied up in receivables is reasonable and whether or not the company has been efficient in converting receivables into cash. A high ratio is indicative of shorter time lag between credit sales and cash collection. By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm. Tootsie's ratio is 14.61 compared to 9.80 of Hershey. It shows that the management of Tootsie is much more efficient in the collection of accounts receivable. Due to the size of transactions, most businesses allow customers to purchase goods or services via credit, but one of the problems with extending credit is not knowing when the customer will make cash payments. Therefore, possessing a lower average collection period is seen as optimal, because this means that it does not take a company very long to turn its receivables into cash. Ultimately, every business needs cash to pay off its own expenses. A long average collection period indicates poor credit control. Tootsie’s average collection period is 24.98 days compared to 37.26 days for Hershey. This shows Tootsie is more efficient in collecting cash payments there being in a better position to pay off its expenses. This ratio is useful to determine the amount of sales that are generated from each dollar of assets. Companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. The asset turnover ratio measures the efficiency of a firm in managing and utilizing its assets. The higher the turnover the more efficient is the management and utilization of assets. Tootsie’s asset turnover seems to be relatively low compared to Hershey’s, meaning that it makes a high profit margin on its products as well as efficiently managing its assets.
This is an important ratio for companies deciding whether or not to initiate a new project. The basis of this ratio is that if a company is going to start a project they expect to earn a return on it, ROA is the return they would receive. Simply put, if ROA is above the rate that the company borrows at then the project should be accepted, if not then it is rejected. Return on assets ratio is considered to be the best measure of profitability in order to assess the overall performance of the business. It indicates how well the management has used the investment made by owners and creditors into the business. It is commonly used as a basis for various managerial decisions. As the primary objective of business is to earn profit, the higher the return on assets, the more efficient the firm is in using its funds. The ratio can be found for a number of years so as to find a trend as to whether the profitability of the company is improving or declining. Tootsie’s ROA of 6.44% is slightly better than the return on assets of 5.10% of Hershey showing that Tootsie is using its assets slightly more effectively than Hershey. This ratio expresses the relation of liabilities with assets. It shows that how much liabilities are covered the portion of assets. Tootsie’s debt/asset ratio is fairly low at 0.21, meaning that its assets are financed more through equity rather than debt. Companies with higher ratios such as Hershey with 0.85, are placing themselves at risk, especially in an increasing interest rate market. Creditors are bound to get worried if the company is exposed to a large amount of debt and may demand that the company pay some of it back. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is currently paying to meet its debt obligations. This ratio shows that how many times the interest amount is covered by firm's earnings before interest and tax. The comparison shows that the Tootsie has a much lower interest on debt as compared to Hershey. Tootsie however might be seen as having too high of a ratio indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects (such as inventing that 3 course meal in a stick of gum from Willy Wonka).
Payout ratio is the amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings. For example, a very low payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends. The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend because smaller dividends are easier to pay out than larger dividends. The comparison shows that the Hershey company has good payout ratio as compared to the Tootsie, because Hershey pays more than its earning and Tootsie has retained big portion of earnings per share. Tootsie is more focused on retaining its earnings while Hershey's dividends are less secure because they are paying out more than they are earning. Return on Equity is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry. This is probably the single most important ratio to judge whether or not a company has earned a satisfactory return for its equity-holders. A comparison of the two companies shows that Hershey gives a much higher return than Tootsie (33.56% vs. 8.14%). This means that Hershey is much more attractive to an investor as it generates much more profit per dollar invested. Free cash flow is a measure of financial performance. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. Some believe that Wall Street focuses myopically on earnings while ignoring the "real" cash that a firm generates. Earnings can often be clouded by accounting gimmicks, but it's tougher to fake cash flow. For this reason, some investors believe that FCF gives a much clearer view of the ability to generate cash (and thus profits). Hershey's high free cash flow shows that it is in a better state to pursue new opportunities because it has more cash on hand.
The Current Cash Debt Coverage ratio measures a company's ability to repay their current debt. This ratio looks at the net cash provided by operating activities. If the number is below 1 that means the company is unable to pay their current debt. If it is over 1 that means the company has excess money and is a good investment. Tootsie's ratio of greater than 1 shows that it much more liquid than Hershey. Tootsie can cover all of its current liabilities while Hershey cannot. The Cash Debt Coverage ratio shows the percent of debt that current cash flow can retire. A cash debt coverage ratio of 1:1 (100%) or greater shows that the company can repay all debt within one year. This ratio is used to evaluate the solvency position of companies. A high ratio is better because with a high ratio, a company shows that it is a better solvency position to cover all liabilities by cash provided by operating activities. Tootsie's higher ratio means that it is a much more solvent position than Hershey.
The Price-Earnings Ratio is a valuation ratio of a company's current share price compared to its per-share earnings. in general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. Hershey's higher ratio means that investors are expecting Hershey to have higher earnings growth in the future when compared to Tootsie.
From the ratios, after analyzing the liquidity ratio of the both companies, it is observed that the ratio of assets to liabilities gives an advantage to Tootsie. The current ratio of 3.45:1 means that every dollar of current liabilities Tootsie has 3.45 dollar of current assets, whereas Hershey has a ratio of 0.88:1 in the same year. This gives an advantage to Tootsie for its creditors, as the short term dept-paying ability for Tootsie is far better than Hershey. On the other hand, if we look at the current cash debt coverage ratio we will notice that this ratio of Tootsie is also better as compared to Hershey. Therefore, overall liquidity position of Tootsie is better than Hershey as it has good current ratio and current cash debt coverage ratio as well as cash debt coverage ratio. Apart from the creditors, both short-term and long-term, others also interested in the financial soundness of a company are the owners and management or the company itself. The management of the company is naturally eager to measure its operating efficiency. Similarly, the owners invest their funds in the expectation of reasonable returns. The operating efficiency of a company and its ability to ensure adequate returns to its shareholders/owners depends ultimately on the profits earned by it. The profitability position of Tootsie, as measures by the profit margin, is very good as compare to the Hershey. Profit margin of Tootsie is 10.48% and is higher than 4.33% profit margin of Hershey. This shows that the operating efficiency of the Tootsie is much better than Hershey. But the Hershey has a higher assets turnover ratio as compare to Tootsie. Return on assets of Tootsie is 6.44% and is higher than 5.10% return on assets of Hershey. The profitability position Hershey, as measures by the return on common stockholders’ equity, is good as compared to Tootsie. Return on common stockholders’ equity of Hershey is 33.56% and is higher than 8.14% return on investment of the Tootsie. The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the companies. The EPS of Tootsie is almost equal to the EPS of Hershey. The overall profitability of Tootsie is better than Hershey. From the ratios, it is observed that the debt to total assets ratio of Tootsie of 0.21 is better as compare to 0.85 of Hershey. The cash debt coverage ratio of Tootsie is 0.54 as compare to 0.22 of Hershey. However the time interest earned ratio of Hershey is much better than the ratio of

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