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Essay / Research Paper Abstract
This 7 page paper looks at the annual account for Tootsie and Hershey for the financial year ending in 2007 and undertakes a ratio analysis looking at liquidity, solvency efficiency and profitability, comparing the two firms. The bibliography cites 3 sources.
Page Count:
7 pages (~225 words per page)
File: TS14_TEtoother.rtf
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Unformatted sample text from the term paper:
In order for a firm to be able to survive it has to have sufficient liquidity, this means it has to have sufficient cash to pay its debts as
they become due. The first ratio will be considered in the current ratio, this looks at the ability of the company to pay current debt by dividing the current assets
by the current liabilities. Figure 1 Current ratio Current ratio Tootsies Hershey Current assets 199,726 1,426,574 Current liabilities 57,972 1,618,770 Current ratio 3.45 0.88 The current ratio1 for Tootsie
shows that the firm is easily able to cover its liabilities easily. The traditional approach is that this ratio should for traditional businesses be in the region of 1.5 (Elliott
and Elliott, 2007). Tootsie has a high ratio, cash and cash equivalents in the current assets are not necessarily the best use of funds, as these are usually non
productive, as such a high current ratio may indicate a high level of opportunity cost (Nellis and Parker, 2006). Hershey is the opposite; there is a rather low ratio. This
may not indicate problems, as the business is one where there is a fairly rapid turnover (10) so there are many more cash flow incomes that are to be received
and the level of current assets reflects this, if receivables are coming in quickly (as seen later in figure 3), as such a lower ratio should not be considered
as problematic on its own. Other aspects need to be considered. The working current cash debt coverage ratio looks at the way that the cash flow from operations, after
dividends have been paid, can cover the current liabilities, there is a similar pattern seen here, with the level from Toostie here higher but both firms are making relatively high
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