Your parents are considering investing in Tootsie Roll Industries common stock. They ask you, as an accounting expert, to make an analysis of the company for them. Fortunately, excerpts from a recent annual report of Tootsie Roll are presented in Appendix A of this textbook.

Instructions

(a) Make a 5-year trend analysis, using 2005 as the base year, of (1) net sales and (2) net earnings.

Comment on the significance of the trend results.

(b) Compute for 2009 and 2008 the (1) debt to total assets ratio and (2) times interest earned ratio.

(See Note 6 for interest expense.) How would you evaluate Tootsie Roll’s long-term solvency?

(c) Compute for 2009 and 2008 the (1) profit margin ratio, (2) asset turnover ratio, (3) return on assets ratio, and (4) return on common stockholders’ equity ratio. How would you evaluate Tootsie Roll’s profitability? Total assets at December 31, 2007, were $812,725,000, and total stockholders’ equity at December 31, 2007, was $638,230,000.

(d) What information outside the annual report may also be useful to your parents in making a decision about Tootsie Roll?

COMPARATIVE ANALYSIS PROBLEM: Tootsie Roll vs. Hershey