Tootsie Roll Industries: Loan Package
Tootsie Roll Industries Inc. is one of the largest candy companies in the United States. Tootsie Roll Industries was established in 1896 and has grown to become a worldwide company. “the Chicago-based company has grown to become one of the country's largest candy companies, with operations throughout North America and with distribution channels in more than 75 countries” (Company Information, 2011, p. 1). The loan package for Tootsie Roll Industries would increase the total liabilities by a 10%.
Tootsie Roll Industries is trying to seek a loan that would improve the company’s net earnings by increasing the company’s liability by a 10%. Tootsie Roll ...view middle of the document...
d., p. 1). A resume of the owners, loan request, loan repayment, personal and business financial statement, proposed business, and projections are all part of the loan package.
The liquidity of a company’s assets shows that assets can be used to pay off current debt or current liabilities. The value should be positive after liabilities are paid. If it is negative that means the company is overextended. Two liquidity ratios are working capital and current ratio. Working capital = $21,910 (Current Assets) - $9,550 (Current Liability) = $12,360. The working capital shows what assets are left after current liabilities are covered. A negative working capital would indicate that the company is over extended and in trouble. The company is in a good position because the company has money left after the debts are covered. Current Ratio = $21,910 / $9,550 = 2.24:1. The current ratio evaluates the risk of liability against a company. Anything under one is bad and rates company as risky because of excessive debt.
Solvency ratios show the sustainability of a company over a long term time frame. The company needs to sustain business with current operations. Two solvency ratios are debt to total assets ratio and cash debt coverage ratio. The Debt to total Assets Ratio in 2007 is
$174,495 (Total Liabilities) / $812,725 (Total Assets) = .21 or 20%. The 2006 $160,958 (Total Liabilities) / $791,639 (Total Assets) = .20 or 21%. The debt to total assets ratio shows the percentage of assets allocated to liabilities. During 2006 20% of assets covered the liabilities and during 2007 21% covered the liabilities. The Cash Debt Coverage Ratio 90,064 (Cash provided by Operations) / (57,972+62,211) (Average Liabilities) / 2= 90,064 /60,091.5= 1.5. The cash debt coverage ratio shows how much cash is available in the company after debt is covered.
Profitability ratios show how profitable is the company’s operations. The profits of the company are used to grow operations so it is important to increase profits consistently. Two profitability ratios are the return on asset ratio and the asset turnover ratio. The Return on Asset Ratio is
52,625 Net Income / (812,725 + 791,639)/2 (Average Total Assets) = 802,182 = 6.6%
The Return on Assets shows how much income comes from every dollar in assets. The Asset Turnover Ratio is 492,742 (Net Sales) / (812,725 + 791,639/2) (Average Total Assets) = 802,182 = $0.61. The Asset Turnover Ratio shows turnover of sales for every dollar invested in assets by Tootsie Roll Industries.
Justification of the reason the company needs the loan
Tootsie Roll management has a commitment to determine how much capital the business will need to conduct its operations properly. The capital requirements of the enterprise will be developed at the time of the information, although the ordinary estimates should be periodically reviewed considering modifications in the scope of the business activities and other unforeseen factors. Once a...