Acc561 Tootsie Roll Industries Loan Package

Tootsie Roll Industries Loan Package

ACC / 561

April 16, 2012

Tootsie Roll Industries Loan Package

In today’s business world a company needs to improve on the products they offer to stay ahead of the competition. Tootsie Roll Industries Inc. has made the decision to improve their line of products by introducing a new product. The company has assembled a loan package that provides a complete ratio analysis of their financial statements, a justification for the loan is included, along with an explanation of how the company plans to use the funds to make improvements. The following paragraphs will explain their purpose in more detail.

Ratio Analysis

Ratio analysis is important in determining the financial health of a company. It expresses the relationship between selected data items contained in a company’s financial statements. Liquidity, solvency, and profitability are the three categories of ratios.

Liquidity

Liquidity ratios determine a company’s short-term ability to pay its maturing obligations and other unanticipated cash needs. The liquidity ratios are of particular interest to bankers and suppliers (Kimmel, Kieso, & Weygandt, 2009). The current ratio shows that Tootsie Roll has assets greater than the company’s total liabilities by 345%. The cash to debt coverage ratio indicates that the company’s cash provided by operations is 150% of their debt. The inventory turnover ratio indicates that the company has an average of 5.40 inventory turns. The average time that products remains in inventory is 67.59 days. The receivables turnover ratio measures the number of times, on average, that the company collects receivables to be 13.27 times per year. The inventory turnover ratio measures how quickly goods are sold. The average number of days that inventory is held for Tootsie Roll is 27.52 days.

The calculations for the various liquidity ratios are illustrated herein:

Current ratio

current assets/current liabilities=

199,726/ 57,972...