A Comparative Anlysis of Hershey Company and Tootsie Roll Industries

Tootsie Roll faces a number of key issues concerning its strategy. One of such strategic issues relates to how it can maintain its marketplace success and sustain its competitive advantages, in light of (i) the company’s growth prospects in U.S. and foreign markets, (ii) intensity of the competition, and (iii) the fact that the two key leaders of the company are not getting any younger.

Fierce competition in the confectionery industry means Tootsie Roll must innovate in order to maintain strong sales. The company does so by reinvesting in its operating assets and creating new products. In 2013, Tootsie Rolls spent $16 million upgrading plant equipment and added Cry Baby Chews, Naughty or Nice Pops, and Andes Creme de Menthe Trees to its product line. Special promotions aimed at the company’s high volume customers also boosted sales.

Let’s look at the balance sheet for Tootsie Roll in more detail. First, the assets on a balance sheet are listed by how easy it is for the asset to be converted into cash. The easiest asset to convert to cash is listed first and the hardest to convert is listed last. The ease which an asset can be converted to cash is called liquidity.

This means that for every dollar of liabilities, Tootsie Roll Company has $3.50 or $3.10 in current assets. In both instances, the current ratio is more than 1, so the company will have very little trouble with liquidity should the need arise.

Stocks between both Hershey Company and Tootsie Roll Industries are similar in nature; however, due to the vast line of products available between the two companies; Hershey comes out ahead with more products to their line. According to current stock numbers, though Tootsie Roll went public in 1922, Hershey, that went public in 1927, has remained the leader. As far as the lowest and highest stock prices have gone in the past 52 weeks, Tootsie Roll's lowest share price was $58.67; while Hershey's lowest share price came in at $29.25. Conversely, Tootsie Roll's highest stock price topped out at $31.96, while Hershey peaked at $65.19 a share.

“Tootsie Roll’s good fortunes are an accumulation of many small decisions that were probably made right plus bigger key decisions, such as acquisitions, that have been made right, and a lot of luck.” Mel Gordon, CEO – Tootsie Roll, 1993

9 This document mentions relatively little outside of avoiding illegal actions, and says nothing of the environment or ethical questions like child labor. Tootsie Roll holds a Corporate Sustainability Rating of 50 out of 100 via CSRHUB,10 and has steadily stayed within this range. With the private nature of the company and the lack of public information paints Tootsie Roll Industries as a neutral company. Glassdoor currently gives the company a rating of 3/5 across only 16 review with only 33% of employees recommending employment at Tootsie Roll to a friend and many of the reviews note low employee engagement and lack of advancement opportunities.11

I have reviewed the past two years liabilities and stockholders’ equity sections of Tootsie Roll Industries, Inc. and compared the balance sheets using Debt to Equity Ratio and Times Interest Earned. The calculations presented in thousands:

When looking at profitability from 2006 to 2007, the ratios show that performance suffered. Profit margin, return on assets, and earnings per share have all dropped. However, net cash provided by operations exceeds 2006 amounts and almost matches that of 2005. Taking all of these ratios into account, Tootsie Roll’s financial standing is strong but could be improved by taking on a loan and investing wisely.

Additionally, the current ratio, the debt ratio, and the debt equity were also computed. The current ratio lets investors know Sprouts ability to pay short-term debt (Gibson, 2013). The ratio results for 2015 was 1.50 times, 2014 was 1.51 times and 2013 was 1.32 times. While the current strived for current ratio is 2.0 times many do meet this standard and Sprouts stability could be attributed to their ability to control the receivables and/or inventory (Gibson, 2013). Meanwhile, the debt ratio tells investors Sprouts ability to pay long-term debt and takes into account the total liabilities and the total assets (Gibson, 2013). In addition it tells creditors, in this case, how well they are or not protected in the event Sprouts is becomes insolvent, thus a lower percentage is desired.

The debt-to-assets ratio indicates the percentage of assets financed by debt as a sign of the company’s financing threat. This analysis shows that the company has increased its debt financing from 27.2% in 2009 to 29.4% in 2010. Analysts probably would decrease their estimates of Radio Shack’s ability to repay lenders because the company increased its relative reliance on debt financing, thus causing Radio Shack to be more

Overall regards to liquidity ratios, the higher the number the better; however, a too high also indicates that the firms were not using their resources to their full potential. Current ratio of 1.0 or greater shows that a company can pay its current liabilities with its current assets. JWN’s ratio increased from 2.06 in 2007 to 2.57 in 2010, and slightly decreased to 2.16 in 2011. JWN’s cash ratio increased significantly from 22% in 2007 to 80% in 2010. JWN has a cash ratio of 73% in 2011, which is useful to creditors when deciding how much debt they would be willing to extend to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies’ ability to pay off their short term liabilities with their operating cash

When comparing the debt-to-assets ratio of McDonalds and Wendys, you have to divide the firms total liabilities by their total assets. Essentially, the debt-to-assets ratio is the primary indicator of the firms debt management. As the ratio increases or decreases, it indicates the firms changing reliance on borrowed resources. The lower the ratio the more efficient the firm will be able to

In January of 2000, Krispy Kreme reported a current ratio of 1.39 or 41,038CA/29,586CL. The current ratio 1.39>1 indicates the company has high liquidity and is able to immediately pay off short-term liabilities. Over the next four years the company’s current ratio continues to increase, as does the company’s quick ratio. The quick ratio allows creditors to compare the current assets minus inventory, which is often the least liquid asset, over current liabilities. As a whole, the company appears to be handling the short-term bills efficiently and maintaining a fairly healthy liquidity of assets. This is likely due to the increase in assets (stores, equipment, inventory, etc). The increased liquidity ratios seem much healthier than the other firms.

While assessing Current Ratio I found that Pepsi Co has had a decrease in Current Ratio from 1.44 in 2009 to 1.11 in 2010 and .96 in 2011. What this means is that in 2011 Pepsi Co would not be able to pay back short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). As for 2010 and 2009 Pepsi Co would be able to pay back short-term liabilities because the ratio is over 1.0. The Current Ratio gives a sense of the efficiency of a company’s operating cycle or its ability to turn their products into cash to pay liabilities.