Acct-504 Final Project

1245 Words Sep 13th, 2014 5 Pages
Financial Analysis of Hershey and Tootsie Roll
Keller University

Financial Analysis of Hershey and Tootsie Roll
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
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(Harrison Jr., Horngen, Tomas, 2013) Even though the cost of goods sold consumes $0.52 of each sale, The Hershey Company managed to generate a profit of $0.48 for each dollar of sales.
Profit Margin Ratio
The profit margin ratio demonstrates the ability of a company to increase the percentage of net income earned for every dollar of sales. For example: “this ratio shows the percentage of each sales dollar earned as net income”. (Harrison Jr., Horngen, Tomas, 2013) The Hershey Company was able to increase the profit margin ratio from 10 percent in 2012 to 11 percent in 2013. The increase in profit margin from the previous year 2012 shows that the performance of the company is increasing which means that revenue is increasing or expenses are decreasing. Furthermore, The Hershey Company is managing their performance efficiently and this is directly reflected in profit margin ratio.
Return on Assets
The return on assets (ROA) ratio helps measure how profitable a company is in relation to its total assets. In the case of Tootsie Roll, the company had an ROA of .06 in 2012 and an ROA of .07 in 2013. This is an increase of close to 16.7 percent year over year. Hershey, on the other hand had an ROA of .14 in 2012 and .16 in 2013. Hershey’s rising ROA is comparable at 14.3 percent. With change 16.7 percent and 14.3 percent being so similar, we favor Hershey’s ROA at the higher rate of .16 in 2013 as opposed to Tootsie

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