The Hershey Company : A Strong Contender For Long Term Success

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The Hershey Company (HSY) keeps continue to be a strong contender for long-term success in the chocolate business. Hershey’s products have strong demand in and outside the U.S. In addition, Hershey 's financial report reveals several successful aspects, such as its high ROE (54.2%) and ROA (16.53%). According to different sources, due to its strong foundation in the U.S., its good key ratios, and a strong focus on global growth, the company 's stock qualifies as a good long-term purchase. Unlike debt capital, which is usually repaid by the firm, equity capital remains invested accordingly, without a maturity date. Their most important sources of equity capital are 1) common stock equity (220,869,509 shares) 2) preferred stock which the…show more content…
Hershey’s current positions in its current assets relative to its current liabilities are: 2012 ($2113.5 mill), 2013 ($2487.3 mill) and 9/28/14 ($2532.6 mil), relative to its current liabilities 2012 ($1471.1 mill), 2013 ($1408.0 mill) and 9/28/14 ($2192.2 mill). Hershey’s managers will not get a precise methodology for the determining the firm’s optimal capital structure, but it is important how the capital structure affects the firm’s value. Tax shield is the major benefit for Hershey’s financing debt (L-T Debt $1559.8 million), because it allows the firm to deduct interest payments (L-T Interest $80.0 mill) on debt when calculating taxable income, ultimately making more earnings available for bondholders and stockholders. On the other side, debt-financing increases the probability of bankruptcy caused by debt obligations, leads to higher constraints to their agency costs and lastly managers will have more access to information related to the firm’s prospects.

The chance for Hershey to file for bankruptcy will depend on an inability to meet its obligations as they come due, this will heavily depend on its levels of business risk and financial risk. The greater HSY’s operating leverage, the higher business risk they will have. Although operating leverage is one of the most important factors affecting business risk, two other factors such as revenue stability and cost stability can affect the firm exponentially. Revenue
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