ACC-202 Lecture Notes - Lecture 34: Profit Margin, Asset, Under Armour

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11 Apr 2016

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Measures the income the company earns on each dollar invested in assets. Asset = things that you own that bring you benefits or that will bring you benefits (money) e. g. cash, equipment. This ratio tells up how much money we have to put out to get money back. For every dollar the company puts into its business, it earns 10 cents every year. Measures the income earned on each dollar of sales. Measures sales volume in relation to the investment in assets. You want this number to be high because you want every piece of equipment you use to generate a higher amount of sales theoretically more net income. 1. 8 brings in nearly twice how much it costs (in theory, how many times does that asset flip itself) Asset turnover = how many dollars in sales every dollar assets generates. Assets = liabilities + owners equity (uses)=(borrowed) + (invested)

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Complete one paragraph, profiling each company's business, including information such as brief histories, where each company is located, number of employees, the products each company sells, and so forth. Please reference any websites that you used for the profiles on the Bibliography tab.

Tootsie Roll Industries began in a small candy store in New York in 1896. Tootsie Roll is now headquartered in Chicago and primarily sells its products in the United States, Canada, and Mexico. According to Yahoo! Finance, Tootsie Roll has 2,000 full-time employees. Tootsie Roll sells the following branded candy: Tootsie Roll, Tootsie Roll Pop, Charms Blow Pop, Mason Dots, Andes, Sugar Daddy, Charleston Chew, Double Bubble, Razzles, Caramel Apple Pop, and Junior Mints. Tootsie Roll had 2014 net product sales of $539.9 million.

Hershey Company was founded by Milton S. Hershey in 1893 and is headquartered in Hershey, Pennsylvania. According to Yahoo! Finance, Hershey has 20,800 full-time employees. Hershey is famous for Good & Plenty, Hershey Bar, Hershey's Kisses, Hershey's Bliss, Reese's, Rolo, Twizzlers, Almond Joy, Kit Kat, and Ice Breakers. Hershey had net product sales of $7.4 billion for 2014.

Tootsie Roll			Hershey			Interpretation and comparison between the two companies' ratios (reading Chapter 13 will help you prepare the commentary)
						The comparison of the ratios is an important part of the project. A good approach is to briefly explain what the ratio tells us. Indicate whether a higher or lower ratio is better. Then compare the two companies on this basis. Remember that each ratio below requires a comparison.
		$ 1.05			$ 3.91


$264,621	=	4.11	$2,247,047	=	1.16
$64,459			$1,935,647


$198,962	=	36.9%	$3,336,166	=	45.0%
$539,895			$7,421,768


$63,298	=	11.7%	$846,912	=	11.4%
$539,895			$7,421,768


$340,933		5.2	$4,085,602		5.6
$66,118		times	$730,289		times


365	=	71	365	=	65
5.2		days	5.6		days


$539,895	=	12.9	$7,421,768	=	13.8
$41,987			$537,426

365	=	28.4	365	=	26.4
12.9		days	13.8		days


$539,895	=	0.60	$7,421,768	=	1.35
$899,398			$5,493,502


	=	7.0%		=	15.4%



$219,250	=	24.1%	$4,109,986	=	73.0%
$910,386			$5,629,516


$83,923	=	847.7	1,389,575	=	16.6
$99			83,532


$0.36	=	1.1%	$2.33	=	2.6%
$32.04			$90.32

$63,298	=	9.2%	$846,912	=	54.0%
$685,721			$1,567,791


	=	$78,065			$ 492,274
		$78,065		=


$30.65	=	29	$103.93	=	27
$1.05			$3.91

You all get the chance to play the role of financial analyst below. The summary should be a comparison of each company's performance for each major category of ratios listed below. Focus on major differences as you compare each company's performance. A nice way to conclude is to state which company you feel is the better investment and why.

Measuring Ability to Pay Current Liabilities: Tootsie Roll has the advantage for the current ratio. Tootsie Roll has $4.11 in current assets for every dollar in current liabilities, while Hershey has only $1.16 in current assets for every dollar in current liabilities.

Measuring Turnover: Hershey has the advantage for the inventory turnover and accounts receivable turnover ratios. Hershey turns over its inventory 5.6 times to Tootsie Roll's 5.2 times, and Hershey turns over its accounts receivable 13.8 times to Tootsie Roll's 12.9 times.

Measuring Leverage - Overall Ability to Pay Debts: Tootsie Roll has significantly less debt than Hershey as evidenced by Tootsie Roll's 24.1% debt-to-asset ratio as compared to Hershey's 73% debt-to-asset ratio. Tootsie Roll can cover its interest expense 847.7 times with income before interest and taxes, while Hershey can only cover its interest expense 16.6 times with their income before interest and taxes. Tootsie Roll has the advantage for each of these ratios.

Measuring Profitability: Hershey has the advantage for 4 of the 5 profitability ratios. Hershey has a significant edge in return on common stockholders' equity, with a 54% return on common stockholders' equity, as compared to Tootsie Roll's 9.2% return on common stockholders' equity. Hershey has a higher gross profit rate (45.0%â36.9%), while Tootise Roll has a higher net profit margin ratio (11.7%â11.4%). Hershey also has a significant advantage for asset turnover (1.35â.60) and rate of return on total assets (15.4%â7.0%).

Analyzing stock as an investment: Hershey returns a 2.6% dividend yield to its investors, while Tootsie Roll's yield is 1.1%. Hershey has positive free-cash flow of $492.2 million, whereas Tootsie Roll has positive free-cash flow of $78.1 million. Free-cash flow can be used to undertake acquisitions, pay additional dividends, pay down debt, or buy back stock.

Conclusion: Tootsie Roll is the safer investment when you examine the ability to pay current liabilities and overall liabilities, but Hershey has the advantage for the turnover and profitability ratios. For the conservative investor, Tootsie Roll looks like the way to go because of its strong current and times interestâearned ratios. For the growth-oriented investor, Hershey is the way to go because of its stronger profitability ratios and large amount of free-cash flow.

ACC-202 Lecture Notes - Lecture 34: Profit Margin, Asset, Under Armour

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