Tootsie Roll Industries Inc: Proposal to Increase Borrowing

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Tootsie Roll Industries Inc. - Part of a Proposal to Increase Borrowing 1. Introduction Tootsie Roll Industries Inc., wish to increase their production capacity and improve efficiency. As the company wishes to take pout a plan which will increase total liabilities by 10%, if there are total liabilities of $174,495, the plan is to raise a further $17,445. To undertake this strategy it is necessary to demonstrate that the firm can afford to increase their debt. The first stage is to look at the financials with the use of a ratio analysis to assess whether the debt is affordable. 2. Ratio Analysis To assess the affordability in the short and the long term liquidity, solvency and probability all need to be assessed. 2.1 Liquidity Liquidity is important for any firm as it is an assessment of the ability to pay its' liabilities in the short term. There are two main liquidity ratios: the current and the quick ratio. The current ratios divides the current assets by the current liabilities to assess how many times the current assets can pay the current liabilities (Elliott and Elliott, 2011). Traditional ratios are usually in the region of 1.5, but this may vary depending on the industry and nature of the business (Elliott and Elliott, 2011). The current ratio is shown in table 1. Table SEQ Table * ARABIC 1; Current ratio Current ratio 2006 2007 Current assets (a) 190,917 199,726 Current liabilities (b) 62,211 57,972 Ratio (a/b) 3.07 3.45 Current

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