Running head: TOOTSIE ROLL

Tootsie Roll Beverly Brown

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Tootsie Roll Solvency ratio is the process of analyzing the companys capacity to pay its long term debt and interest on that debt, and help business owner make a decision regarding long-term survival of the company. The formula for solvency is total assets divided by total liabilities. A ratio of at least 1.0 greater show company is in good financial standing including long range financial solvency. In 2007 Tootsies Rolls total assets were $812,725 against total liabilities of $174, 895 that resulted into a solvency ratio of 4.656. This ratio indicates the company assets are four times their liabilities including cash investment with maturity no more than three months. The solvency ratio in 2006 for Tootsie Roll was 4.818 which derived from a total assets of$791,639 and total liabilities of $160, 958 shows that there is a ratio trend indicating the company is financially health. Profitability Ratios To help investor or creditor assess the companys ability to repay loans and measure the companys success over a period of time a profitability ratios are use. The three important ratios in this group are the profit margin, the gross profit rate, and the payout ratio. These ratios are shown in table 1. The profit margin ratio is calculated by dividing net income by net sales, which measure each dollar of sales the equal to net income. In 2007 a 10% increase was added to every dollar to increase net income. The second ratio gross profit rate is calculated taking the gross profit and dividing it by net sales. It shows the companys ability to have sales prices above the cost of goods. The third ratio is net profit it is calculated by dividing net profit by net revenues, it is express as a percentage. This indicated how effective the company is at cost control. The higher the profit margin the effective the company is capable of changing revenue into profit.

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Table 1: Profitability Ratio for Tootsie Roll Industries for 2007

Gross Profit Margin Sales Cost of Goods Sold The gross profit margin is:

$492,742 $327,695 33.5%

Operating Profit Margin Operating profit Sales The operating profit margin is: Net Profit Margin Net Profits After Taxes Sales The net profit margin is:

$70,852 $492,742 14.4%

$51,625 $492,742 10.5%

Liquidity Ratio Provides information on the company ability to meet its near term obligations, and is a major ratio to measure the company financial health. According to Kimmel this is done by comparing a companys liquid assets to those assets that is easily converted to cash against shortterm liabilities. These ratio are shown in table 2. To determine a company ability to meet its short-term obligation and potential for bankruptcy a working capital ratio will provide this information. If the working capital is negative, the company may not meet its short-term obligation. This could lead to the company potentially being forced into bankruptcy. If the results are positive it means the company has cash that is available to pay current debts if necessary Current ratio is the companys ability to meet its short-term liabilities with its short term assets. This indicated for every dollar Tootsie Roll has $3.50 in current assets. The ratio for current ratio

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is more than 1 indicating the company ability to liquidity without difficulty. The company cash debt
ratio only measures the company cash flow to its liabilities, which defines the company ability to

borrow on a short term and the current portion of long-term debt. It indicated the companys ability to pay it total debts with its yearly cash flow from operation. The higher the percentage ratio indicated the company abilities to carry its total debts.

Table 2 Liquidity ratio for Tootsie Roll in 2007

NET WORKING CAPITAL Current Assets Current Liabilities The net working capital is: CURRENT RATIO Current Assets Current Liabilities The current ratio is: Cash RATIO Cash operation Average Current Liabilities $

$199,726 $57,972 141,754

$199,726 $57,972 3.45

$90064 $59,722

The Cash ratio is:

1.55

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