FI 504 Financial Analysis - Financial Ratio Analysis of...

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Financial Ratio Analysis of Hershey Foods Corporation And Tootsie Roll Industries, Inc. Keller - FI 504 Accounting and Finance
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Financial Analysis Part I: 1. Earnings per Share (EPS) (net income – preferred stock dividends) / average common shares outstanding): The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Hershey Tootsie Roll 2004 2003 200 2 2004 2003 2002 0.23 1.22 1.22 2.36 1.77 1.50 Hershey and Tootsie Roll should not be compared since such comparisons are not meaningful due o wide variations in the number of shares outstanding stock among companies. Hershey’s EPS has increased 0.59 cents in 2004. This represents a 33.3% increase from the 2003 EPS of $1.77. Whereas Tootsie Roll has an insignificant increase. 2. Current Ratio ( current assets / current liabilities):It is also called working capital. It provides an indication of the liquidity of the business by comparing the amount of current assets to current liabilities. A business's current assets generally consist of cash, marketable securities, accounts receivable, and inventories. Current liabilities include accounts payable, current maturities of long-term debt, accrued income taxes, and other accrued expenses that are due within one year. In general, businesses prefer to have at least one dollar of current assets for every dollar of current liabilities. However, the normal current ratio fluctuates from industry to industry. A current ratio significantly higher than the industry average could indicate the existence of redundant assets. Conversely, a current ratio, significantly lower than the industry average, could indicate a lack of liquidity. Hershey Tootsie Roll 2004 2003 2004 2003 0.92 1.93 2.34 3.88 A current ratio of 1.0 means the company could theoretically survive for one year, even if it made no sales. Hershey's current ratio has significantly decreased from 1.93 in 2003 to 0.92 in 2004; this is significantly below the industry average of 1.28. Tootsie Roll's current ratio has significantly decreased from 3.88 in 2003 to 2.3409 in 2004. In addition, Tootsie Roll's current ratio has been above the industry average for all three years. Therefore, Tootsie Roll is able to pay its current debt more than Hershey. 3. Gross Profit Rate (gross profit / net sales): An indicator of a company’s ability to maintain an adequate selling price above its cost of goods sold. Hershey Tootsie Roll 2004 2003 200 2 2004 2003 2002 0.40 0.39 0.38 0.42 0.43 0.43
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Both companies’ rates are similar to each other. Whereas Tootsie Roll’s slightly decreased from previous year, Hershey’s have slightly increased. 4. Profit Margin Ratio
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FI 504 Financial Analysis - Financial Ratio Analysis of...

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