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ACC 561 Tootsie Roll Industries

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ACC 561 Tootsie Roll Industries Inc.
ACC/561
Tootsie Roll Industries Inc.
Tootsie Roll Industries has been an American favorite for well over 100
years. “Beginning in a modest New York candy store with the Tootsie
Roll's introduction in 1896, the Chicago-based company has grown to
become one of the country’s largest candy companies, with operations
throughout North America and with distribution channels in more than 75
countries.” The brand is successful with a diverse group, which allowed
there superb taste and style in candy assortments to reach all
demographics, including all ages and origins. This appeal has led to the
growth and continuous success of the brand. Looking at current times,
Tootsie Roll Industries strives to stay current and competitive in an
international setting, with Mexico as its biggest international partner
while maintaining steady growth in the United States. Examples of this
include product diversification; new flavors (sour products), shapes (mini
tootsies, square tootsies, etc.), sizes, gluten free, and kosher products.
Despite the financial achievements of the company in past decades,
ownership is seeking financing to support new ideas to further grow the
company.
In the past, particularly 2006 to 2007 the company experienced an
overall decline. This decline was caused by many factors, such as a
slower economy, which led to fewer sales, higher costs for raw materials,
rising onetime costs of buying outstanding shares, and advertising
dollars contributed to the lower share value. Nonetheless, the company
worked to take cost cutting procedures and make departments more
efficient to help rein in operating costs. Although this lower share
dividend may cause concern for loan approval, second glance would
prove Tootsie Roll Industries has maintained a positive reputation
financially and publicly for the past 116 years. Please see attached
financial statements for the past two years.

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Sales and profits have been up in overseas markets, along with capital
and resources that are a consistent investment to strengthen and
streamline the supply chains. Facilities have updated technology to
support growing production lines and changing distribution patterns.
2007 was the initiation of a companywide software upgrade, completed
by 2008. This was to enhance internal communications and modernize
company procedures. The Tootsie Roll Company is on track for
retirement of outstanding debt and maintains a healthy cash flow. Recent
investments in infrastructure and supply chain management will result in
a more productive and efficient company.
Below are various ratios to demonstrate the overall health of the
company as of December 31, 2011 in thousands; including liquidity,
solvency, and profitability ratios. Liquidity ratios continue to determine a
company’s ability to pay off short-term debts and obligations. Working
Capital:
Current Assets-Current Liabilities=212,201-58,355=153,846
a) Current Ratio: Current Assets/Current Liabilities
2011: 212,201/58,355=3.63:1
2010: 235,167/58,505=4:02:1
This is a positive sign for the company. The higher a current ratio is over
1 signifies the company is more capable of paying off short-term debt.
That means every dollars of liability is met with 3.63 of current assets.
b) Quick Ratio: Current Assets-Inventories/Current Liabilities
212,201 - 71,760/58,355=2.4
Again, this is a positive sign. This ratio is more conservative than the
current ratio because it excludes inventories. For this reason, the fact the
result is significantly higher than one makes it highly probable the
company will be able to pay off short-term debts.
c) Current cash debt coverage ratio: Cash provided by
operations/Average current liabilities
2011: 50,390/ (58.505+58,355)/2=.86
2010: 82,805/ (58.505+58,355)/2=1.417

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