Financial Analysis of The Hershey Company

2270 Words Mar 8th, 2014 10 Pages
Liquidity ratios measure a company’s ability to meet its maturing short-term obligations. In other words, can a company quickly convert its assets to cash without a loss in value if necessary to meet its short-term obligations? Favorable liquidity ratios are critical to a company and its creditors within a business or industry that does not provide a steady and predictable cash flow. They are also a key predictor of a company’s ability to make timely payments to creditors and to continue to meet obligations to lenders when faced with an unforeseen event.
Current Ratio
Current Assets/Current Liabilities

This ratio reflects the number of times short-term assets cover short-term liabilities and is a fairly accurate indication of a
…show more content…
This ratio relates the ability of a company to generate sales using its working capital to determine how efficiently working capital is being used. In general, a lower number is preferred because it indicates a company has a satisfactory level of working capital. However, an exceptionally low number may indicate inadequate sales levels are being generated.

The sales to working capital ratio for Hershey Company is 10.34 reveals that the company 's level of working capital is strong. The company may want to make an effort to generate additional sales using the available working capital.

Activity ratios provide a useful gauge of a company 's operations by determining, for example, the average number of days it takes to collect on customer accounts and the average number of days to pay vendors. A key point to keep in mind when evaluating these ratios is that seasonal fluctuations are not necessarily reflected in the numbers that are derived from these calculations based on an account balance on one single day.
Accounts Receivable Turnover
Sales / Trade Accounts Receivable
This ratio measures the number of times receivables turn over in a year and reveals how successful a company is in collecting its outstanding receivables. A higher number is preferred because it indicates a shorter time between sales and cash collection.

The accounts receivable turnover for Hershey Company is 14.40 suggests this ratio may be on target with company objectives.
Open Document