I need help with question 2 and 3 please. Could someone please get me in the rig

Question

I need help with question 2 and 3 please. Could someone please get me in the right direction? Thank you!
I

ANALYZING FINANCIAL RESULTS PROJECT Use the income statement, balance sheet and cash flow statements attached to complete the analysis detailed below 1) Compfet 3 Vertical analysis for 2011 1-1 llowing for the balance sheet of the Hershey Company analysig comparing 2010 and 2011 Identify and discuss percentages that appear significant 2) Calculate the following financial ratios for 2011 (show your work) for both companies (Hershey Company, Tootsie Roll Industries) Liquidity Ratios Current ratio Current Assets/Current Liabilities Quick ratio - (Current Assets -Inventory)/ Current Liabilities . Efficiency Ratios Inventory turnover COGS/Average inventory Inventory period 365/ Inventory turnover . Accounts receivable turnover Credit sales/Average receivables . Receivables period 365/Receivables turnover Payable turnover =COGS / Average payables .Payables period 365/ Payable turnover .Operating cycle Inventory period plus Receivables period (number of days from inventory purchase to receipt of cash) Cash cycle Operating cycle less Payables period (number of days from time cash is paid out to when cash is received) 3) Write a summary of 100-150 words including the following Compare each of the ratios for the two companies and discuss what they indicate relative to the health of the companies Discuss areas of concern. Discuss areas of strength. .

Explanation / Answer

2.

The formulas can be viewed in the table below:

3.

In terms of liquidity Tootsie Roll has better liquidity ratios of current ratio and quick ratio when compared to Hershey. This means that Tootsie Roll is in a better position to service and pay its current liabilities.

In terms of efficiency ratio Hershey demonstrates better efficiency in its operations as indicated by its higher inventory turnover ratio and higher accounts receivables turnover ratio. The ratios shows that Hershey is able to turn its inventory and debtors more number of times than Tootsie Roll and hence are more efficient. The higher turnover ratios for Hershey translate into lower inventory period and accounts receivable period for Hershey. Payables turnover for Hershey is less than Tootsie Roll and this also indicates that Hershey pays its creditors on a slower terms than Tootsie Roll. This indicates that Hershey has a better credit terms with its suppliers.

Clearly the areas of concern for Hershey are its liquidity position which is lagging its peers like Tootsie Roll. The area of concern for Tootsie Roll is its efficiency with regards to its operations. Tootsie Roll has a very high cash cycle (almost double of that of Hershey’s figure). Thus area of strength for Hershey is its operations and for Tootsie Roll is its higher liquidity.

Hershey Tootsie Roll Current ratio 1.74 3.64 Quick ratio 1.19 2.41 Inventory turnover 6.00 5.69 Inventory period 60.81 64.17 Accounts receivable turnover 15.40 13.33 Receivables period 23.70 27.39 Payables turnover 8.54 35.68 Payables period 42.72 10.23 Operating cycle 84.51 91.55 Cash cycle 41.79 81.32

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