Tootsie Roll Industries Inc. Loan Package

Tootsie Roll Industries Inc. Loan Package

Erica L. Rice, Elizabeth Williams, Helen Vereka, Jill Caspers, Wiley king

ACC/561

11 February 2013

Edward Hastings

Tootsie Roll Industries Inc. Loan Package

Introduction

As Tootsie Roll Industries moves forward to continue producing the best product, this loan with the attached analysis of financial statements, justification for the reason the company wants the loan, the purpose for the loan and explanation of how the company plans to use the proceeds from the loan are outlined.

In order to continue growth an upgrade of the machinery and advertising needed to keep the company in the spotlight is very important. Research for new products to introduce requires more funding as well. This cannot be done without additional resources added to the company. Borrowing the funds will help speed this process up.

When reviewing the financial statements of Tootsie Roll Industries, Inc., a number of ratios can be calculated to help evaluate the financial health and performance of the company (Kimmel, Weygandt, & Kieso, 2009). In evaluating Tootsie Roll statements, the numbers are displayed in thousands.

Liquidity ratios

Liquidity ratios are used to evaluate the ability to meet short-term debt obligations. "The higher the value of the ratio, the larger the margin of safety that company possesses to cover short-terms debts" (Investopedia, NA). Some of the calculations found under the heading of liquidity ratio are the working capital, current ratio, receivables turnover and the average collection period.

Working capital shows the ability to pay off short-term debt. It is calculated by taking current assets minus current liabilities (Investopedia, NA). At Tootsie Roll Industries, their working capital is $141,754. This shows that Tootsie Roll has extra current assets to fund their production. The current ratio is a ratio that measures the ability to pay short-term obligations. A ratio over one shows that there are excess current assets to pay for current liabilities (Investopedia, NA). The calculations, current assets divided by current liabilities give a ratio at Tootsie Ratio of 3.45, which is a very favorable ratio.

Solvency ratios

Solvency ratios determine the ability to pay long-term debt and show the likelihood of long-term survival (Kimmel, Weygandt, & Kieso, 2009). Some of the solvency ratios that are used to evaluate a company are the debt to total assets ratio, the cash debt coverage ratio and the free cash flow ratio.

The debt to total asset ratio is calculated by dividing total liabilities by total assets. This ratio determines how much of the assets have been financed with debt. (Investopedia, NA). The lower the ratio the better. At Tootsie Roll, the debt to asset ratio is, 21.

Cash debt coverage ratios are an indication of how long a company will take to pay back debts using is current cash flow. The higher the percentage the more likely the company will be able to pay off its debt (Bryant, 2013). The cash debt at Tootsie Roll Industries is .54, which indicates they are capable of paying off their debt.

Profitability ratios

"Profitability ratios measure the income or operating success of a company for a given period of time" (Kimmel, Weygandt, & Kieso, 2009). Common profitability calculations are the earnings per share, the gross profit rate and the profit margin ratio.

Earnings per share indicate a company's profitability. It tells the amount of profits allocated to each share of common stock (Investopedia, NA). The earnings per share at Tootsie Roll are .94 per share.

The gross profit rate shows the ability to pay for overhead. It is a ratio that is best compare year to year to see how the company is trending (McBride, 2013). The gross profit rate at Tootsie Roll Industries is .34, the gross profit rate