This paper conducts a comparative financial ratio analysis of two publicly traded U.S. chocolate companies — Tootsie Roll and Hershey — using data from their 2001 and 2002 annual reports. The analysis applies the DuPont system to evaluate return on equity, examines liquidity ratios (current and quick ratios) to assess short-term solvency, and reviews profitability and asset management indicators. Findings suggest that while both companies maintained stable liquidity, Hershey demonstrated stronger growth across most financial metrics in 2002, whereas Tootsie Roll showed signs of stagnation and inefficient asset utilization. The paper concludes with an investment recommendation based on the comparative results.
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The paper demonstrates comparative ratio analysis, a foundational technique in corporate finance where multiple financial indicators are computed from income statement and balance sheet data, then benchmarked against a direct industry rival. This approach illustrates how no single ratio tells the whole story — for example, Tootsie Roll's liquidity looks strong in isolation but reveals inefficiency when interpreted alongside its asset turnover figures.
The paper opens with brief company profiles to orient the reader, then proceeds systematically through four categories of financial ratios: DuPont/ROE, liquidity, profitability, and asset management. Each section presents data tables for both companies, interprets the numbers, and draws comparative conclusions. The paper closes with a concise investment recommendation grounded in the cumulative findings. This funnel structure — from description to data to interpretation to judgment — is a model for applied finance writing.
This paper analyzes and compares the annual reports of two rival U.S. public companies operating in the chocolate industry: Tootsie Roll and Hershey.
Tootsie Roll was founded at the end of the 19th century by an Austrian émigré who began producing a chocolate, chewy candy named after his five-year-old daughter. The company expanded over the decades and is today one of the largest candy companies in the United States. Headquartered in Chicago, it has operations in Massachusetts, New York, Tennessee, Wisconsin, and Mexico, with total net sales of $393 million at the end of 2002.
Hershey, on the other hand, is considered the leading North American manufacturer of chocolate, with well-known brands such as Almond Joy, Mounds candy bars, Cadbury Crème Eggs, and Hershey's Cookies 'n' Crème candy bars. Hershey's operations are divided into two main divisions: Hershey Chocolate North America and Hershey International. The former is the leading producer of chocolate products in North America, while the latter exports to over 90 countries worldwide.
In order to evaluate the DuPont ratio, the required indicators must be drawn from each company's financial statements — specifically net income, sales, total assets, and shareholders' equity.
For Hershey, these figures are expressed in thousands of dollars and cover the fiscal years 2001 and 2002. Based on this data, the computed Return on Equity (ROE) figures are as follows: in 2002, ROE = 29%, while in 2001, ROE = 18%.
The DuPont system essentially shows how much of every dollar earned from sales has increased shareholders' wealth. As the data clearly indicates, Hershey's ROE increased by 11 percentage points from 2001 to 2002. A closer examination reveals that this increase was driven primarily by net income, which nearly doubled during this period.
For Tootsie Roll, the relevant figures — also expressed in thousands of dollars — yield the following results: in 2002, ROE = 12.6%, while in 2001, ROE = 12.9%.
These figures show that Tootsie Roll experienced a slight decrease in its Return on Equity. However, this decline is not significant and does not materially affect the company's overall performance.
Comparing the two companies, the 2001 ROE figures were only a few percentage points apart — a notable achievement for Tootsie Roll, given that its net income and sales were nearly ten times smaller than Hershey's. However, by 2002, Hershey's ROE had grown at a substantially faster pace. It is also worth noting that Hershey experienced an overall decrease in total sales from 2001 to 2002, while Tootsie Roll's sales showed a steady increase over the same period.
In order to assess each company's short-term solvency, it is useful to examine the liquidity ratios — specifically the current ratio and the quick ratio. These ratios were calculated for both companies for 2001 and 2002.
Hershey's current ratio and quick ratio both fall between 1 and 2.5, which is within the normal range for most companies. The current ratio increased by approximately 0.4 from 2001 to 2002, indicating that Hershey faces no concerns regarding its short-term solvency.
The same general conclusion applies to Tootsie Roll, though with an important caveat: the values obtained are unusually high. A current ratio of 4.25 in 2001, declining only modestly to 3.57 in 2002, indicates that the company's current liabilities are disproportionately small and that it is not utilizing its credit lines effectively. While there is no concern about short-term solvency, Tootsie Roll should consider whether its capital structure could be optimized. For reference, a current ratio between 1.5 and 3 is generally considered healthy, with ratios significantly above that range suggesting idle or underdeployed assets.
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