Question

The Hershey Company is one of the world's leading producers of chocolates, candies, and confections. It sells chocolates and candies, mints and gums, baking ingredients, toppings, and beverages. Hershey's consolidated balance sheets for 20x2 and 20x3 follow. Hershey: Consolidated Balance Sheets Dollar Amounts in Millions 20X2 20X3 Assets Current Assets Cash and Equivalents $728.3 $1,118.5 Receivables 461.4 477.9 Inventories 633.3 659.5 Deferred Income Taxes 122.2 52.5 Prepaid Expenses and Other Assets 168.3 178.9 Total Current Assets $2.113.5 $2,487.3 Property, Plant and Equipment, Net 1,674.1 1.805.3 Goodwill 588.0 576.6 Other Intangible Assets, net 214.7 195.2 Other Assets 164.5 293.0 Total Assets $4,754.8 $5,357.5 Liabilities and Shareholders' Equity Current Liabilities Accounts Payable $442.0 $461.5 Accrued Liabilities 650.9 699.7 Accrued Income Taxes 2.3 79.9 Short-Term Debt 118.2 166.0 Current Portion of Long-Term Debt 257.7 0.9 Total Current Liabilities $1,471.1 $1,408.0 Long-Term Debt 1,531.0 1,795.1 Other Long-Term Liabilities 668.7 434.1 Deferred Income Taxes 35.7 104.2 Total Liabilities $3,706.5 $3,741.4 Shareholders' Equity Common Stock 359.9 359.9 Additional Paid-In Capital 593.0 664.9 Retained Earnings 5,027.6 5,454.3 Treasury Stock (at cost) (4,558.7) (4,707.7) Accumulated Other Comprehensive Loss (385.1 (166.6) Noncontrolling interests 11.6 11.2 Total Shareholders' Equity $1,048.4 $1,616.1 Total Liabilities and Shareholders' Equity $4,754.8 $5,357.5 Additional information for 20X3 is as follows amounts in millions): Total credit sales (all on credit) $7,146.1 costs of goods sold 3,865.2 Net income 820.5 Required: Next Level Compute the following ratios for 20X3. Provide a brief description of what each ratio reveals about Hershev.

Answer 1

Return on common equity =

Net Income/Average common equity

Average Common Equity =

(Opening balance of equity + closing balance of equity)/2

= ($1,048.4+1,616.1)/2

= $1,332.25

Net income is $820.5

So Return on common equity is

= $820.5/$1,332.5

= .616

Debt to Assets = Total Debt/Total Assets

= $3,741.4/$5,357.5

= .69

Debt to Equity = Total Debt/Total Equity

= $3,741.4/$1,616.1

= 2.32

Current Ratio =

Current Assets/Current Liabilities

= $2,487.3/$1,408

= 1.77

Quick Ratio =

(Current Assets - Inventories - prepaid expenses)/Current Liabilities

= ($2,487.3 - $659.5 - $178.9)/$1,408

= 1.17

Inventory Turnover Day =

365days/Inventory Turnover

Inventory Turnover =

Cost of goods Sold/Average Inventory

Average Inventory = (Opening balance of inventory + closing balance of inventory)/2

= ($633.3+$659.5)/2

= $646.4

COGS is $3,865. So,

Inventory Turnover = $3,865/$646.4

= 5.98

Days = 365/5.98

= 61 Days

Account Receivables Turnover Days= 365/Account Receivables Turnover

Accounts Receivables Turnover = Credit Sales/Average Receivables

Average Receivables = ($461.4+$477.9)/2

= $469.65

Credit sales is $7,146.1. So,

Account Receivables turnover = $7,146.1/$469.65

= 15.22

Days = 365/15.22

= 24 Days

Accounts Payable Turnover Days = 365/Accounts payable Turnover Ratio

Accounts Payable Turnover Ratio = Credit purchases or COGS/Average Accounts Payable

Average Accounts Payable = ($442+$461.5)/2

= $451.75

COGS is $3,865.2 So

Accounts Payable Turnover = $3,865.2/$451.75

= 8.56

Days = 365/8.56

= 43 Days

Operating Cycle = (Days in Inventory + Days in Accounts Receivables) - Days in Accounts Payables

= (61 Days + 24 Days) - 43 Days

= 42 Days

Asset Turnover Ratio =

Total Sales/Average Total Assets

Average Total Assets = ($4,754.8+$5,357.5)/2

= $5,056.15

Total sales is $7,146.1 So,

Asset Turnover Ratio = $7,146.1/$5,056.15

= 1.41