Hershey And Tootsie Case Study

395 Words2 Pages
Application # 6 Debt and Equity Hershey and Tootsie Go to the website of Hershey and Tootsie. Download and read the financial statements (IS, BS, SCF, SE) and the relevant footnotes (“Summary of Significant Accounting Policies” and footnotes discussing debt, commitments and contingencies). Debt Calculations From the financial information calculate and interpret the following ratios. Current ratio = Current assets / Current liabilities Total debt to assets = Total liabilities / Total assets Times interest earned = Net income + interest + taxes / interest Hershey’s net interest expense on the income statement is net of interest income. Tootsie does not have interest expense on the income statement. For both companies, try to find the gross interest…show more content…
Since debt and equity levels are closely related there is an analysis called the “DuPont model” that systematically breaks ROE into components so that each can be evaluated. ROE = NI x EBT x EBIT x Sales x Total assets EBT EBIT Sales Total assets Common equity EBT = earnings before taxes. The first ratio measures the proportion of earnings before tax that is kept by the company. EBIT = earnings before interest and taxes. The second ratio measures the effect of interest; it indicates the proportion of earnings before interest and tax that is retained after paying interest. It should be considered together with the leverage component (assets/equity). The third ratio measures the company’s operating profit on sales; it can be broken down into subcomponents such as gross profit margin. Common-sized income statements can help with

More about Hershey And Tootsie Case Study

Open Document