12-54 Profitability Ratios

Exhibit 12-17 contains income statements and balance sheets of The Hershey Company . For more than 100 years, The Hershey Company has enjoyed a position as one of North Americas largest manufacturers of quality chocolate and confectionery products. Today, The Hershey Company and its subsidiaries export to approximately 70 countries worldwide

1. Compute the following ratios for 2011: (a) ROE, (b) gross profit rate, (c) return on sales, (d) total asset turnover, (e) ROA (with after-tax net income in the numerator), and (f) financial leverage ratio. Note that to be consistent with the industry averages used in the problem, return on sales and ROA are computed with after-tax net income, not EBIT in the numerator.

2. Assess Hersheys profitability in 2011 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 .

Reuters Averages (as of August 31, 2012) Tootsie Roll (year ended December 31, 2011) Return on stockholders equity 19.08% 6.59% Gross profit rate 38.75% 31.2% Return on sales (Net income Sales) 5.91% 8.3% Total asset turnover 1.11 times 0.62 times Return on assets (Net income Assets) 8.16% 5.12%