12-52 Liquidity Ratios Exhibit 12-17 contains the income statements and balance sheets of The Hershey Company, manufacturer of such well-known products as Hershey's chocolate bars, Reese's peanut butter cups, Almond Joy candy bars, and York peppermint patties. 1. Compute the following ratios for 2011: (a) current, (b) average collection period, and (c) inventory turnover. Assume all sales are on credit. 2. Assess Hershey's liquidity compared with the following averages for the food processing industry as provided by Reuters and with ratios computed for Tootsie Roll, a competitor in the candy manufacturing, marketing, sales, and distribution industry. Reuters provides the following overview of the food processing industry. The industry consists of companies engaged in processing and packaging produce, meats, fish, animal feeds, fruit juices and dairy products. The industry includes, grain milling, crop cleaning, grading and packaging, animal slaughtering and packaging operations, seafood processing, freezing, canning operations, juice, coffee, tea, dairy and all other food manufacturers, including pet foods." Reuters Averages Tootsie Roll (as of August 31, 2012) (year ended December 31, 2011) Current ratio 1.38 times 3.64 times Average collection period 19.1 days 27.4 days Inventory turnover 5.89 times 5.69 times * Reuters reports Receivable Tumover as 19.15 times per year. (365 + 19.15) = 19.1 days. 2010 EXHIBIT 12-17 The Hershey Company Years Ended December 31, 2011, and December 31, 2010 ($ in thousands, exce per share data) $ 884,642 390,061 533,622 55,760 141,132 2,005,217 1,437,702 524,134 123,080 21,387 161,212 $4,272,732 CONSOLIDATED BALANCE SHEETS 2011 Assets Current assets: Cash and cash equivalents $ 693,686 Accounts receivable-trade 399,499 Inventories 648,953 Deferred income taxes 136,861 Prepaid expenses and other 167,559 Total current assets 2,046,558 Property, plant, and equipment, net 1,559,717 Goodwill 516,745 Other intangibles 111,913 Deferred income taxes 38,544 Other assets 138.722 Total assets $4.412,199 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 420,017 Accrued liabilities 612,186 Accrued income taxes 1,899 Short-term debt 42,080 Current portion of long-term debt 97,593 Total current liabilities 1,173,775 Long-term debt 1,748,500 Other long-term liabilities 617.276 Total liabilities 3,539,551 Stockholders' equity: Common stock, shares issued: 299,269,702 in 2011 and 299,195,325 in 2010 299,269 Class B Common stock, shares issued: 60,632,042 in 2011 and 60,706,419 in 2010 60,632 Additional paid-in-capital 490,817 Retained earnings 4,699,597 Treasury-Common stock shares, at cost: 134,695,826 in 2011 and 132,871,512 in 2010 (4,258,962) Accumulated other comprehensive loss (442,331) The Hershey Company stockholders' equity 849,022 Noncontrolling interests in subsidiaries 23,626 Total stockholders' equity 872,648 Total liabilities and stockholders' equity $4.412,199 $ 410,655 593,308 9,402 24,088 261,392 1,298,845 1,541,825 494,461 3,335,131 299,195 60,706 434,865 4,374,718 (4,052,101) (215,067) 902,316 35,285 937,601 $4,272.732 590 CHAPTER 12 FINANCIAL STATEMENT ANALYSIS EXHIBIT 12-17 (Continued) CONSOLIDATED STATEMENT OF OPERATIONS The Hershey Company For Years Ended Years Ended December 31, December 31, December 31, 2011, and December 31, 2011 2010 2010 ($ in thousands, except Net sales $6,080,788 $5,671,009 per share data) Costs and expenses: Cost of sales 3,548,896 3,255,801 Selling, marketing, and administrative 1,477,750 1,426,477 Business realignment and impairment charges, net (886) 83,433 Total costs and expenses 5,025,760 4,765,711 Income before interest and income taxes 1,055,028 905,298 Interest expense, net 92.183 96,434 Income before income taxes 962,845 808,864 Provision for income taxes 333,883 299,065 Net income $ 628,962 $ 509,799 Net income per common share-Basic-Class B Common stock $ 2.08 Net income per common shareDiluted Class B Common stock $ 2.56 2.07 Net income per common share-Basic-Common stock $ 2.85 $ 2.29 Net income per common shareDilutedCommon stock $ 2.58 $ $ 2.74 $ 2.21 12-53 Solvency Ratios Exhibit 12-17 contains the income statements and balance sheets of The Hershey Company for the years ended December 31, 2011, and December 31, 2010. Hershey manufactures and sells products under more than 80 brand names. 1. Compute the following ratios for 2011: (a) total-debt-to-total-assets, and (b) total-debt-to- total-equity. To be consistent with the source of industry data used in the problem, define total debt as short-term debt and long-term debt (including the current portion) only. This defini- tion is not the one we have used in the text, so it is worth emphasizing that it does not include items such as accounts payable and accrued liabilities; only the items specified. 2. Assess Hershey's solvency compared with the following industry averages for the food processing industry as provided by Reuters and with ratios computed for Tootsie Roll, a competitor in the candy manufacturing, marketing, sales, and distribution industry. See a description of the food processing industry in problem 12-52. Tootsie Roll Reuters Averages (year ended (as of August 31, 2012) December 31, 2011) Total-debt-to-total-assets Not available 0.0% Total-debt-to-total-shareholders' equity 46.05% 0.0%* Tootsie Roll has no debt in its capital structure! In fact, total liabilities are only 22.4% of total assets