Tootsie Roll Industries Inc. and its branches makes and sells candy including “Andes mints, Junior Mints, Charleston Chew, Mason Dots, Sugar Daddy, and the ever popular Tootsie Roll, which has been made from the same formula for over a 100 years” (Hoovers Academics, 2012) Tootsie Roll Industry’s customers include a wide variety of supermarkets, dollar stores, discount warehouse clubs, fund-raising charitable organizations, and the United States Military (Reuters, 2012).
Team “A” studied various financial statements, such as the income statements, statements of cash flows and performed a ratio analysis to look at the Financial Condition of Tootsie Roll Industries. A ratio analysis helps explain the relations between the different statements to help manage the company’s opportunity for improvement when looking at each individual financial statement (Kimmel, Weygandt, & Kieso, 2009).
The financial review revealed that “product sales have decreased 2.8% from the previous year in the first quarter and cost of goods sold as a percentage of net sales increased from 64.3% to 67.1%” (Tootsie Roll Industries Inc. 10-Q, 2008).
As a result of higher total costs from an increase on the costs of ingredients, packaging material costs, and the Canadian dollar foreign exchange rate Fair Value of financial assets of Tootsie Roll Industries (expressed in thousands) for fiscal year 2007 was reported at $73,928. The company has tried to reduce the use of raw materials by using derivative hedging instruments to reduce the market price exposure, to swings, and increase their net profit (Tootsie Roll Industries, Inc. Financial position, 2008).
The Business plan on Financial Statement Analysis
In the healthy and growth inducing economic scenario of the 2000's, P&G has seen double digit revenues growth to around $56b in 2005. Keeping its costs low has seen it achieve healthy profit margins of around 11% - 12%. Refer Table 1.Table 1Margins P&G(in %) 200320042005Gross Margin 4951.251Profit Margin 11.9612.6112.79Financial Health: P&G is a stable company operating in a very ...
Tootsie Roll Industries Inc. affronts various risks in the market including the fluctuations in prices for the ingredients to make its’ candies and the cost of packaging and fuel for delivery of its products. The Canadian Dollar exchange rate increases the company’s total costs. The company needs to use Canadian dollars to buy a portion of raw and packaging materials as well as to pay for the company’s operating expenses in Canadian plants. Tootsie Roll Industries, Inc. limits its’ exposure to fluctuations in the markets interest rates by investing in and generally holding securities with a maturity rate of at least three years (Tootsie Roll Industries, Inc. 10-Q, 2008).
After Team “A” reviewed the financial statements of Tootsie Roll Industries, Inc. the team members agreed to the decision that it would be advantageous to open a factory in the United States. This strategy will create job opportunities, and decrease the negative effect of the foreign exchange rate that the company has been experiencing with the Canadian dollar. The decision of opening a new factory promotes good will in the United States with opportunities to expand the business.
Tootsie Roll Industries, Inc. management and stockholders analyzed its financial statements to create the new action plan based on the company’s needs. The accountants and financial advisors completed a deep analysis of the company financial ratios, to identify, and compute the liquidity ratios to determine the company’s ability to repay the debt. The solvency ratios determine if the company will survive over a long term, and the profitability ratios predestine the operating success of the company. The profitability ratios, such as the profit margin ratio result very low 10.4% but still profitable, the debt to assets total ratio was 21. 5%, and with the new loan will increase to 31.5% which is still good for such a large company and the times interest earn ratio increased 5.2 times slightly improving the company’s solvency.
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The current ratio improved 3.44% demonstrating the company’s liquidity (Appendix 1) Tootsie Roll Industries is thinking about opening a factory in the United States and how this will create more job opportunities and also reduce the negative effects on the foreign exchange rate with the Canadian dollar. The best type of loan to seek is CDC/504 program. This program will allow Tootsie Roll to provide jobs for the community while also improving on its interest rates. The requirements for the loan is to provide financial statements, such as the balance sheet, income statement, statement of cash flow, and retained earnings statement for the past three years. The information provided to a lender for the purpose of borrowing money to build a new facility in the United States.
The amount of the loan that Tootsie Roll is asking for is $1million to purchase a facility, or build a new facility in the United States. This would be for building purchase, land, equipment, supplies, and any other soft costs needs. The loan requirements according to Small Business Administration (SBA) structure 40% of total project costs by the participating lending company, 50% covering total project costs and 10% covered by Tootsie Roll (SBA, 2012) Therefore, Tootsie Roll meets the CDC/504 requirements for the loan by either building or renovating a building.
The key is to provide new jobs to the community with the possibility of expansion in the near future. The life of the loan is 20 years at a fixed rate with 90% of financing. This type of loan does not require a balloon payment, however Tootsie Roll will be able to make monthly payments until the debt is paid off. Tootsie Roll can offer it is assets for collateral if the debt is not repaid. These assets can be the other property, plant, and equipment (SBA, 2012)
Conclusions
Team “A” discussed the reasons for the company to obtain a loan, and the destination benefits of the funds. Another topic discussed was the loan requirements and how to overcome those requirements with a detailed business plan and strategy to expand the business and offer new jobs to help the economy and the community development. Finally the company had to show the financial statements to present a loan package offer to the selected lender, disclosing the new debt ratio, to demonstrate the company’s ability of repayment for the loan. Present and explain how this loan will benefit the community and its benchmarking strategy to compete in the market with top performance companies and increased their market share. Even though the company is adding another debt to its liabilities, it will still help the company’s growth, and lead the industry.
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BackgroundMerrill Lynch is one of the world's leading financial management and advisory companies, with offices in 38 countries and total client assets of approximately $1.5 trillion. As an investment bank, Merrill Lynch is a leading global underwriter of debt and equity securities and strategic advisor to corporations, governments, institutions and individuals worldwide. Through Merrill Lynch ...
References
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Retrieved March 10, 2012, from www.hoovers.com: www.hoovers.com/company/Tootsie_Roll_Industries../rrcsif-1.html
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Retrieved March 10, 2012, from www. reuters.com/finance/stocks/companyProfile?rpc=66..TR: www.reuters.com/finance/stocks/companyProfile?rpc=66..TR
Tootsie Roll Industires From 10-Q. (2008, March 29).
The United States Securities and Exchange Commision Form 10-Q. Washington, D.C.
Tootsie Roll Industries, Inc. and subsidiariescondensed consolidated
statements of financial position. (2008, November 11).
Tootsie Roll Industries, Inc. 10-Q.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009).
Accounting: Tools for business decision making. Hoboken: John Wiley & Sons, Inc.
www.sba.gov retrieved 12 March 2012
