Acc 561 Week 3 Team Tootsie Roll Loan Paper

Tootsie Roll faces a number of key issues concerning its strategy. One of such strategic issues relates to how it can maintain its marketplace success and sustain its competitive advantages, in light of (i) the company’s growth prospects in U.S. and foreign markets, (ii) intensity of the competition, and (iii) the fact that the two key leaders of the company are not getting any younger.

Keeping Cost of Goods Sold at a minimum is just as vital as Marketing and Advertising. Maximum value for both customers and shareholders rely on the company’s operations being as lean as possible and its raw materials prices as low as possible. Tootsie Rolls Industries continually upgrades its plant assets to add capacity, improve quality, or increase efficiency. The company manages cost of raw materials through competitive bidding and using commodities futures

Current assets are assets that can be easily converted to cash or will be used within one year. Tootsie Roll 's balance sheet lists cash first. Tootsie Roll lists investments, next. Investments may also be listed on a balance sheet as marketable securities. Investments are short-term investments such as stocks, bonds, or other investments that can be turned into cash

Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of confectionery products for 113 years. Our products are primarily sold under the familiar brand names: Tootsie Roll, Tootsie Roll Pops, Caramel Apple Pops, Child’s Play, Charms, Blow Pop, Blue Razz, Cella’s chocolate covered cherries, Tootsie Dots, Tootsie Crows, Junior Mints, Junior Caramels, Charleston Chew, Sugar Daddy, Sugar Babies, Andes, Fluffy Stuff cotton candy, Dubble Bubble, Razzles, Cry Baby, Nik-L-Nip and EI Bubble.

“Tootsie Roll’s good fortunes are an accumulation of many small decisions that were probably made right plus bigger key decisions, such as acquisitions, that have been made right, and a lot of luck.” Mel Gordon, CEO – Tootsie Roll, 1993

This strategy of acquiring and improving upon unique brands helps the company avoid the first pitfall of utilizing a differentiation strategy as brands cannot be easily or quickly copied. However, the obsession with reputable and older, recognized brands makes this maneuvering come off as defensive. Coupled with Tootsie Roll’s lack of recent innovation both in products and marketing, as well as staying within the confectionary industry and not making attempts to experiment outside of this sector, causes the company to seem antiquated and

After carefully reviewing the income statement, balances sheet and cash flow it seems that the company has a negative cash flow for 1998, so even before thinking about obtaining internal and external resources for long term investment, the company must assure resources for their own working capital.

I have reviewed the past two years liabilities and stockholders’ equity sections of Tootsie Roll Industries, Inc. and compared the balance sheets using Debt to Equity Ratio and Times Interest Earned. The calculations presented in thousands:

Times interest earned ratio shows an indication of a company’s ability to meet interest payments as they come due. Tootsie Roll has a much higher probability of meeting the interest payments as they are due.

Even though most of these expenses are not of big magnitude their value can add up and affect the company’s finances. Some of these items are accrued time for employees, bonuses, benefits, utilities, improvements and taxes. Some additional sources of working capital include; cash reserves, profits, equity loans, line of credit, and long term loans.

The statement of cash flows outlines some of the changes to the capital structure. The company added $164.5 million in a consolidated loan facility, and it paid out $138.1 million in dividends. There were no share buybacks during the year. The company states in the annual report (p.4) that it intends to maintain a conservative gearing ratio. The company in this section attributes its increased borrowings to projects and opportunities on which it has embarked. These investments lie within the integrated retail, franchise and property system. One of the

Financing requirements of the company can be determined by calculating the cash requirements of the company by adding the working capital needs and capital expenditure needs of the company. Working capital needs can be calculated by subtracting current liabilities from current assets of the company. Current assets of the company will remain significantly lower than current liabilities for next three years. Working capital needs of the company come out to be $17.523 million, $21,028 million and $21,028 million for years 2010, 2011 and 2012. Capital expenditures of the company will remain at $0.9 million for all three years. Adding the values of working capital needs and capital expenditure needs for all years and by subtracting these values from net income, we can calculate the external financing required by the company to meet the cash needs for next three years. As shown in calculations in excel sheet, external financing requirements for the company come out to be $15.231 million for 2010 and $18.091 million for 2011 and 2012 respectively.

The liquidity, profitability, and solvency ratios reveal some interesting points about Kudler Fine Food’s financial position. The liquidity ratios revealed that during 2002 and 2003, Kudler was having no trouble paying short-term debt. However, the current and acid-test (quick) ratios showed that during 2003 Kudler had an excess amount of cash that they were not investing properly. These ratios also showed that Kudler was collecting receivables and selling average inventory very quickly. The profitability ratios revealed that during 2002 and 2003, Kudler was using assets efficiently and making a decent profit. The profit margin ratio

From this statement we can conclude that the increase in current assets appears to be from a continued influx of cash and marketable securities. The same report also states that Boeing, “added $114 billion in new orders, expanding our record company backlog to more than $390 billion – nearly five times current annual revenues” (Boeing, 2012). From this statement we can assume that the large backlog of orders could be the culprit for the continued low working capital turnover rate.

Working capital management is a strategized tool of corporate finance for making financial decisions that make and analyze a business enterprise. This finance management method in a corporate organization involves the comprehension of the totals while conducting working capital plus how it is financed. There are several concepts that assist in the comprehension of proper working capital management. These concepts are current asset holdings and financing policies, cash conversion cycle, cash budget and cash management techniques. This context, however, probes on how current asset holdings and financing policies are used in improving the value of a company through the combination of an organization's one-time and fiscal free cash flows (FCF). It is necessitated that a firm takes in superior working capital management to incalculably cut down the required investments in functionality in order to provide larger FCFs and a higher firm value (Brigham and Daves, 2009, pg 727).