Tootsie Roll Industries Inc. Loan Package University of Phoenix Tootsie Roll Industries Inc. Loan Package Tootsie Roll Industry Inc. will be preparing a loan package to maintain ultimate company performance, maximize the company’s profits, and increase the shareholder’s value. Tootsie Roll Industry Inc. will be applying for a loan that will increase the company’s total liability by $17,449. 50. A perfect loan package includes a concise executive summary that focuses primarily on the ratio analysis of the financial statement, justification for the loan, and explanation of how the company intends to use loan.
The corresponding ratio calculations are justified in the appendix. Executive Summary Leo Hirshfield opened the first small store in 1896, which has grown into Tootsie Roll Industry Inc. Annual sales estimate nearly half-a-billion dollars and more than 62 million Tootsie Roll candies are produced daily. Tootsie Roll Industries is one of the world’s largest candy producers. Tootsie Roll Industry Inc. continues to expand through its mission and values by focusing on relentless hard work; an unyielding commitment to quality; and a humble, socially responsible, family-run corporate culture (Tootsie Roll Industries, n. . ). Ratio Analysis Liquidity Ratios Under the category of liquidity ratios (Kimmel, Weygandt, & Kieso, 2009), the current ratio indicates the ability for a company to pay off the short-term debt with its assets. In Tootsie Roll’s case, it has more than three times of assets over the short-term liability. Inventory turnover ratio is the information that shows the frequencies of a company’s sold inventory and replaced within a period (Investopedia, 2012). Tootsie Roll is 5. 400; in measuring if sales and purchasing are strong; creditors should compare it with the average inventory turnover ratio in the industry.
For example Hershey’s inventory turnover ratio was 5. 3 in the same year (Morning Star, 2012). The comparison shows that similar-sized companies in the same industry have similar sales rate and turnover times. Solvency Ratio In the solvency ratio, debt ratios show the proportion of a company’s assets financed through debt (Investorwords, n. d. ). Cash debt coverage ratios show the ability of a company to repay the liability from the cash generated by operations (Venturelibne, n. d. ). If this ratio is 1:1 (100%), it means a company can repay debts within one year. Because Tootsie Roll has a 1. 99:1 ratio, it would take a shorter time to repay its debt. The time interest earned ratio determines if the earnings are available to cover the interest payment (Bizwiz Consultant, n. d. ). The higher the ratio is, the greater the chance is to meet the interest payment. Profitability Ratio Concerning profitability ratio calculations, the gross profit rate is the relationship between gross profit net sales (Kimmel, Weygandt, & Kieso, 2009). A gross profit rate of 1% is usually unacceptable in most industries (Kimmel, Weygandt, & Kieso, 2009). Tootsie Roll has a 33. 5% gross profit rate.
Asset turnover ratios show the efficiency of a company to generate sales with its assets (Kimmel, Weygandt, & Kieso, 2009). Tootsie Roll has a ratio of 0. 614, which accounts for each dollar of assets. Tootsie Roll produces 0. 614 dollars of sales. Justification of Loan Tootsie Roll Industries requires a business loan to introduce its Tootsie Roll product to the American population. The loan will be used to implement a new marketing and advertisement campaign to deluge the market with the Tootsie Roll brand. The advertising campaign will introduce Tootsie Roll’s candies to major vendors, such as Hershey and M & M Mars.
New Marketing Strategy Tootsie Roll will select Bayard, a popular advertising agency. Bayard’s advisors will reestablish Tootsie Roll’s candy by introducing a new sugar fee version of Tootsie Roll candy. Advertising this new sugar free version will create brand awareness, and will increase customers. Tootsie Roll will continue to use visual aspects in its campaign mix, just as Kit Kat, M& M’s, and Hershey have done previously. For instance, the owl licking the Tootsie Roll lollypop connects the customer to the product. The child asks the owl how many licks it takes to get to the middle of the Tootsie Roll pop.
The owl will lick the lollipop and begin counting. This visual identity is familiar to older generations. Tootsie Roll will also focus on recreating visual aspects to target younger audiences. The campaign requires additional funding. However, the revenues generated are vital to the company’s yielded return is greater. Intend Use of the Loan Tootsie Roll will allocate funds to the following areas, expansion, marketing, and retirement. Tootsie Roll aspires to remain the brand highly recognized across all classes of trade (Kimmel, Weygandt, & Kieso, 2009).
Tootsie Roll can use additional funding to expand and penetrate United States and foreign markets successfully while improving its products. Tootsie Roll continues to offer products that are accessible, affordable, and customer-centered. Using targeted consumer and trade promotions to create value in the product will also increase distribution and sales, and yield a faster return on investment. Tootsie Roll will strategically utilize local and international agencies to maximize opportunities for partnerships, and to increase its clientele.
Select seasonal products like Halloween and Christmas candy have increased sales. However, unavailable products, and high priced commodities, such as sugar, have impacted margins and profitability (Kimmel, Weygandt, & Kieso, 2009). Tootsie Roll generated net earnings of $52 million in 2007; a $14 million dollar decrease from the $66 million generated in 2006 ((Kimmel, Weygandt, & Kieso, 2009). Tootsie Roll can expand into a niche market to deliver healthy products, such as sugar-free candies to generate continual revenues.
Tootsie Roll can also develop an efficient marketing campaign upon the loan’s approval. A marketing campaign that implements both primary and secondary research methods, such as market analysis’, focus groups, and data sampling is crucial to the company’s continued success. Tootsie Roll should invest in a promotion mix that includes Internet, indirect mailing, and social media advertisement, to maximize profits, to maintain a competitive advantage. Finally, Tootsie Roll will use additional funds to improve employee relations. Tootsie Roll believes that its company’s success depends on its rapport with employees.
Building good employee relations means creating an environment that delivers what employees want today (American City Business Journals, 2012). Employees today want future security. Good employee relations establish employee morale, and enables employees to maximize his or her contribution to the company (Kimmel, Weygandt, & Kieso, 2009). Currently, Tootsie Roll offers contribution plans for nonunion employees and multi-employer pensions for union employees (Kimmel, Weygandt, & Kieso, 2009). Nonunion pensions from 2005 through 2007 totaled $10, 315 with employer contributions totaling $2694.
While, union contributions totaled $3352 (Kimmel, Weygandt, & Kieso, 2009). Tootsie Roll has been advised that pension plans are insufficient. Therefore, it is ideal to implement a plan that will establish good employee relations, to maintain the ultimate company performance, maximize the company’s profits, and increase the shareholder’s value. Conclusion Preparation of a loan package is essential for businesses. The loan package prepared for Tootsie Roll Industry Inc. included an executive summary with a focus on ratios analysis, justification for the loan, and explanation of how the company intends to use loan.
The loan will provide opportunities for the company to maximize profits and continue to follow its mission and values. References Barnes, S. (2012). American City Business Journal: Tips to Improve Employee Relations. Retrieved from http://www. bizjournals. com/austin/stories/1998/03/30/focus4. html Bizwiz Consultant. (n. d. ). Retrieved from http://www. bizwiz. ca Investopedia. (2012). Retrieved from http://www. investopedia. com/terms InvestorWords. com. (n. d. ). Retrieved from http://www. investorwords. com/ Kimmel, P. D. , Weygandt, J. J. , & Kieso, D. E. (2009).
Accounting: Tools for Business Decision Making (n. d. ). Retrieved from the University of Phoenix eBook Collection. Morning Star. (2012). Retrieved from http://quicktake. morningstar. com/stocknet/efficiencyratios10. aspx? symbol=hsy Tootsie Roll Industries. (n. d. ). Company Information. Retrieved from http://www. tootsie. com/about. php VentureLibne. (n. d. ). Retrieved from http://www. ventureline. com/accounting-glossary Appendix TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (In thousands except per share data)| | 2007| 2006| | Net Product sales| 492,742| | |
Product cost of goods sold| 327,695| | | Product gross margin| 165,047| | | Net earnings| 51,625| | | Inventories| | | | Finished goods and work-in-process| 37,031| 42,146| | Raw materials and supplies| 20,371| 21,811| | Total current assets| 199,726| | | Total assets| 812,725| 791,639| | Total current liability| 57,972| 62,211| | Net cash provided by operating activities| 90,064| | | Income taxes paid| 11,343| | | Interest paid| 537| | | Working capital= current assets- current liability= 199,726- 57,972= 141,754| Current Ratio= current asset/ current liability= 3. 445|
Inventory Turnover ratio= cost of goods sold/ average inventory= 327,695/60,609. 4= 5. 400| Debt to assets ratio= total liabilities/ total assets= 57,972/ 199,726= 0. 290| Cash debt coverage ratio= cash provided by operations/ average total liability= 90,064/ 60,091. 5= 1. 499| Time interest earned ratio= (net income+ interest expense+ tax expense)/ interest expense= 63,505/537= 118. 259| Gross profit rate= gross profit/ net sales= 165,047/ 492,742= 0. 335=33. 5%| Asset turnover ratio= net sales/ Average total assets= 492,742/ (812,725+791,639)= 0. 614| Profit margin ratio= net income/ net sales= 51,625/ 492,742= 0. 105|