Liquidity Ratios:

Overall Tootsie Roll has better liquidity. Liquidity measures the short-term ability to pay obligations as they are expected to be due within the next year.

When working capital is a positive number, there is a higher likelihood that the company will be able to pay it liabilities. Is this case Tootsie Roll is more likely to be able to pay their liabilities because they have a positive working capital and Hershey’s is negative.

The current ratio indicates the ability to pay on maturing obligations and to be able to meet unexpected cash needs. Again in this case Tootsie Roll has a higher probability of being able to pay their obligation and meet their unexpected cash needs. They have a $2.34:1 ratio compared to Hershey’s $0.92:1

Current cash debt coverage is considered a better representation of the ability of a business to meet its immediate obligations on the average day. The text explains if below 0.40 more investigation in the company’s liquidity should be done. Both Tootsie Roll and Hershey are above 0.40; however Tootsie Roll still shows a higher ability to meet their immediate obligations.

Inventory turnover ratio shows how quickly the company sells its products. Although a high inventory ratio means the company is tying up little funds in inventory, it also means they could be losing out on sales opportunities due to inventory shortages. In this case Hershey sells their product faster, but they may be losing out on sales due to shortages.

Days in inventory indicates the average age of inventory. Tootsie Rolls inventory has a lower age. This indicates that Tootsie Roll is more efficient in their inventory management.

Receivables turnover ratio measures the average number of times a company collects receivables during a period. Although Tootsie Roll and Hershey’s values are close, Hershey collects