Calculated Financial Ratios

"Exercise 4C: Perform a Financial Ratio Analysis for Hershey Company. Purpose:Financial ratio analysis is one of the best techniques for identifying and evaluating internal strengths and weaknesses. Potential investors and current shareholders look closely at firms' financial ratios, making detailed comparisons to industry averages and to previous periods of time. Financial ratio analyses provide vital input information for developing an IFE Matrix" (David & David, 2017, p. 124).

Instructions:Calculate 20 financial ratios:

(1) Use Hershey's 2014 financial data in the textbook Cohesion Case, Exhibits 2-4, pp. 29-30;

(2) Then, choose 2 of your remaining ratios from Table 4-4, and calculate them using the 2014 financial data. (This will equal the 20 required in the Individual Case Analysis 1).

(3) Note: If the ratio you select requires comparison to the prior year, compare the 2014 financial data to the 2013 financial data.

Liquidity Ratios

1.Current ratio: Current assets/Current liabilities

2.Quick ratio: Current assets minus inventory/Current liabilities

Leverage Ratios

3.Debt-to-total-assets ratio: Total debt/Total assets

4.Debt-to-equity ratio: Total debt/Total stockholders' equity

5.Long-term debt-to-equity ratio: Long-term debt/Total stockholders' equity

6.Times-earned-interest ratio: Profits before interest and taxes/Total interest charges

Activity Ratios

7.Inventory turnover: Sales/Inventory of finished goods

8.Fixed assets turnover: Sales/Fixed assets

9.Total assets turnover: Sales/Total assets

10. Accounts receivable turnover: Annual credit sales/Accounts receivable or

Accounts receivable turnover: Net sales/Average accounts receivable

11. Average Collection Period: Accounts receivable/Total credit sales / 365 days or

Average Collection Period: Accounts receivableet sales

Profitability Ratios

12. Gross profit margin: (Sales minus costs of goods sold)/Sales

13. Operating profit margin: Earnings before interest and taxes (EBIT)/Sales

14. Net profit margin: Net income/Sales

15. Return on total assets (ROA): Net income/Total assets = 6,178/74,638

16. Return on stockholders' equity (ROE): Net Income/Total stockholder's equity

17. Earnings per share (EPS): Net Income/ # of shares of common stock outstanding

18. Price-earnings ratio: Stock Price/EPS

19.Growth Ratio

Choose one of the growth ratios (e.g., remaining ratios)

Sales: Annual % growth in total sales - (current year - previous year)/previous year

Net income: Annual % growth in profits =- (current year - previous year)/previous year

Earnings per share: Annual % growth in EPS- (current year - previous year)/previous year

Dividends per share: Annual % growth in dividends per share- (current year - previous year)/previous year

Verify that the ratio has the correct sign. Is the change positive or negative?

Express the ratio as a percentage

20.Growth Ratio

Choose a second growth ratio not calculated for 19 above.

Sales: Annual % growth in total sales - (current year - previous year)/previous year

Net income: Annual % growth in profits =- (current year - previous year)/previous year

Earnings per share: Annual % growth in EPS- (current year - previous year)/previous year

Dividends per share: Annual % growth in dividends per share- (current year - previous year)/previous year

Verify that the ratio has the correct sign. Is the change positive or negative?

Express the ratio as a percentage