The Hershey Company is the largest producer of chooolate in North America under

Question

The Hershey Company is the largest producer of chooolate in North America under the Hershey's and Reese's brand names. The following balance sheet Information is provided at the end of throo necent years (in thousands December 31, December 31 December 31 Year 3 Year 2 Year 1 Canent assets: Cash Short-term investments Accounts receivable Inventories 37485400 $1,118,508.00 $728,27200 0.00 5%,940.00 477912.00 461.5810) 01,056.00 659,54100 633,262.00 77086.00 231,37300 290,568.00 24704700 $2,487,33400 $2,113,485.00 7,131.00 .00 Other current assets Total cument assets Curent labilities: Accounts payable Other current liabilities Total liabilities 20100$461,51400 $441,97700 453,63000 946,508.00 10,153.00 1,935,64700 $1,408.022.00 $1,471,11000 Required Compute the working capital for the tvee years b Compute the cument ratio for the three years. Rlound to one decimal place c. Compute the quick ratio for the three years. Rlound to one decimal place Interpret the short-term iquidlity for the three years from () Ane the otfher two measures in (a) and (bj consistent with your analysis in (d)?

Explanation / Answer

a. Working Capital = Current Assets - Current Liabilities

Year 1 = $2,247,047 - $1,935,647 = $311,400

Year 2 = $2,487,334 - $1,408,022 = $1,079,312

Year 3 = $2,113,485 - $1,471,110 = $642,375

b. Current Ratio = Current Assets / Current Liabilities

Year 1 = $2,247,047 / $1,935,647 = 1.2

Year 2 = $2,487,334 / $1,408,022 = 1.8

Year 3 = $2,113,485 / $1,471,110 = 1.4

c. Quick Ratio   

Year 1 = ($2,247,047 - $801,036) / $1,935,647 = 0.8

Year 2 = ($2,487,334 - $659,541) / $1,408,022 = 1.3

Year 3 = ($2,113,485 - $633,262) / $1,471,110 = 1.0

d. Answer = The increase in cash balance was the major contributor for the increase in quick ratio in year 2.

Cash balance in year 2 has increased significantly which improved company's quick assets position, as a result quick ratio in year 2 also showed improvements.

e. Answer = Both the working capital and current ratio show the same pattern of liquidity expansion from year 1 to year 2, then contraction from year 2 to year 3

"It would be appreciated if you give your feedback"

(Total Current Assets - Total Inventories) / Total Current Liabilities

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