Financial Analysis - Tootsie Roll Essay
The company that I chose to analyze is Tootsie Roll - Financial Analysis - Tootsie Roll Essay introduction. Throughout my life I have always had somewhat of a sweet tooth and have been very intrigued in the process of business. Now I have the opportunity to look further into such a great company such as Tootsie Roll and really find out how the business is run and what type of work is invested in such a well known business. The ticker symbol for the Tootsie Roll Company is quite simple by using just two letters, TR. With this symbol it is easy to find different information regarding the company’s stock exchange and other finances.
The stock exchange in which Tootsie Rolls shares are listed is the New York Stock Exchange (NYSE). According to Yahoo Finance, the current share price for common stock as of close February 22, 2008 is $24. 22. Many investors look at trends in the share prices for common stock before making a decisionon which company to invest in. By looking at the historical prices on Yahoo Finance for Tootsie Roll, the trend in the price of the common stock for the past three years from January 1, 2005 to December 31, 2007 using the monthly closing price on average was: 2005: $30. 3 2006: $29. 81 2007: $27. 76 As you can see, the prices have decreased slightly every year. However, in order to determine if this company would be a good investment I would have to compare Tootsie Rolls financial status to other competitors’financial status such as The Hershey Company. All the quantitative context of the financial analysis is important. However,the qualitative portion is not to be taken lightly. A great deal of credit (and blame) falls upon the leaders of the company.
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A company should consist of a strong Executive Board that is consistent in making good decisions for the sake of the company’s reputation along with financial health. Our economy is growing and changing rapidly therefore the Executive Board needs to be up to date with the latest trends for things such as strategic advertising and becoming aware of how to price their products to relate to the everyday consumer. These types of decisions are generally made by the “Head Honchos” (with feedback from the sales representatives within each department) and greatly impact changes in revenue and the stock market.
Tootsie Roll’s highest selling period was Halloween (which is common for most candy manufacturers) and focused on promotional programs to target consumers. Also, they changed up their packaging to adapt to the trends of the consumers and catch their eyes. I have reviewed the past two years liabilities and stockholders’ equity sections of Tootsie Roll Industries, Inc. and compared the balance sheets using Debt to Equity Ratio and Times Interest Earned. The calculations presented in thousands: The statement of cash flows breaks down the cash exchange of the long term debt for the past two years.
Under the Financing Activities portion of the cash flows statement it shows the long term debt broken down intoproceeds from and repayment of bank loans. The calculations of the changes in the past two years are expressed below in thousands: Repayment of bank loan: (38,001) (98,400) -61. 4 % (decrease) The footnotes described the interest rates that wereissued and also that “All bank loans outstanding at December 15, 2005 were paid in 2006”, which can be found under Note 3 – Bank Loan and Industrial Development Bonds.
Tootsie Roll hastwo classes of common stock; Common Stock and Class B Common Stock. According to the footnotes under Note 2: Earnings per share, a brief description of the two stocks states that the only difference in Class B Common Stock and Common Stock is that Class B has ten votes per share as opposed to Common Stock having one vote per share. In addition, Class B is not traded on any exchange, is restricted as to transfer and is convertible on a share-for-share basis, at any time and at no cost to the holders, into shares of Common Stock which are traded on the New York Stock Exchange.
The results of the outstanding shares and treasury stock for 2006 and 2005 are expressed below as recorded on the balance sheet. Class B common shares Outstanding: By looking at the outcome of the dividend payout ratio you can see that Tootsie Roll Industries, Inc. allocated 26% of their net income to dividends and 74% was retained for operating needs in 2006 and 20. 7% of their net income to dividends with a retained 79. 3% for operating use in 2005. Also, the dividend yield ratio shows that $. 26 is paid to the shareholders for every dollar that is earned in 2006 and $. 1 is paid to the shareholders for every dollar earned in 2005. The market share price for 2006 and 2005 was based on the close price as of 12/31/2006 and 12/31/2005. Based on my overall analysis of the debt and equity financing, Tootsie Roll is expanding. The company’s long term debt has decreased and they did not purchase any new loans from the bank in 2006 which decreases interest expenses and liabilities and gains assets (considering the outstanding loans as of December 31, 2005 we paid off in 2006). In addition the outstanding shares decreased by 1. % but the treasury stock increased by 3. 3 %which had an effect on the decrease in outstanding shares. The dividend payout increase which indicates that company feels stable enough to raise the dividends. On top of all of that the market share price has increased also, although the market prices fluctuate every day, it is still a good sign that they are not significantly lower or higher than previous year making it overpriced or underpriced which sometimes indicates to investors that the company may be in trouble or the resale would be difficult.