BYP9-1

a) At December 31, 2009, total cost of property, plant and equipment was
$427,597,000; book value was $206,876,000.
b) Depreciation is calculated by use of the straight-line method over the estimated useful lives of 20 to 35 years of the assets.
c) Depreciation and amortization was: 2009: $17,862,000, 2008: $17,036,000
2007: $15,859,000.
d) Tootsie Roll’s purchases of property, plant, and equipment were: 2009:
$20,831,000, 2008: $34,355,000.
e) Tootsie Roll intangible assets are goodwill and trademarks with indefinite lives and they are not amortized, rather tested for impairment at least annually. The test is performed by comparing the carrying value of the asset with its estimated fair value, calculated using estimates including discounted projected future cash flows.
BYP9-2
a) (in thousands) Tootsie Roll Hershey Foods
1. Return on assets ratio $53,475 $435,994 ($813,525+$838,247)/2=6.5% ($3,675,031+$3,634,719)/2 =11.9%
2. Profit margin $53,475 $435,994 $495,592=10.8% $5,298,668=8.2%
3. Asset turnover ratio $495,592 $5,298,668 ($813,525+$838,247)/2=.6 times ($3,675,031 +3,634,719)/2= 1.45 times

b) The asset turnover ratio measures how proficiently a company uses its assets to generate sales. It shows the dollars of sales generated by each dollar invested in assets. Hershey Foods’ asset turnover ratio (1.45) was
90% higher than Tootsie Roll’s (.6) in 2009. Therefore, it can be determined that Hershey Foods was significantly more proficient than Tootsie
Roll during 2009 in utilizing assets to generate sales. This proficiency was somewhat offset by a profit margin (8.2%) that was significantly lower than Tootsie Roll’s (10.8%). Tootsie Roll is more effective in generating profit from its sales, but its lower asset turnover resulted in only a 6.5% return on assets compared to Hershey’s 11.9% return. This shows that a company can create a reasonable return on assets with a lower profit margin, if it has a high turnover ratio.