Tootsie Roll Industries Inc. Loan Package ACC/561 – Accounting August 15, 2011 Tootsie Roll Industries Inc. Loan Package Since the company’s establishment in 1896, Tootsie Roll Industries Inc. has expanded to become one of the biggest candy companies in the United States. Tootsie Roll Industries Inc. is one of America’s most recognized candy companies through manufacturing and selling some of the most popular candies in the world.
The company has an extensive amount of products sold in many venues including grocery stores, vending machines, and drugstores. Tootsie Roll Industries Inc. applies innovation consistently by developing new forms of presentation and creating more options for the consumer. In the first quarter of 2011 the company increased sales effectively through improved marketing processes but the increased costs of ingredients, freight, energy, and other factors lowered the net earnings to $8,000,000 compared to $9,204,000 in 2010. Tootsie Roll Industries Inc. s currently seeking beneficial opportunities to improve the net earnings and shareholder value of the organization. The company is completing a loan package by determining its current financial situation through ratio analysis of its financial statements. The goal is to secure a loan for the company to fund $2. 5 million to improve the business. The company will explain how the proceeds from the loan will be used to enhance business operations and how the loan approval will affect the company. Tootsie Roll Industries Inc. s confident its reputation as a stable company with an internationally recognized brand of products paired with a thorough assessment of the company’s financial needs and a complete loan package presentation will effectively acquire the funds necessary to enhance business and financial performance (Tootsie Roll Industries, 2011; U. S. Small Business Administration, 2011). Financial Statements Ratio Analysis Liquidity Ratios 20102009 Tootsie Roll Industries’ current ratio and debt coverage ratios fluctuated between 2009 and 2010 with an increase to $4. 6:1. The Company’s financial statements indicate an increase in cash from $90,990 to $115,976 and a decrease in investments as well as an increase in accounts payable and accrued liabilities. Tootsie Roll’s accounts receivable and inventory ratios also fluctuated, but generally indicate a strong and consistent ability to manage its receivables, employ effective credit policies, and effectively turn over its inventory. Solvency Ratios 20102009 Tootsie Roll Industries’ debt to assets ratio is low compared to that of Hershey Company.
This indicates that Tootsie Roll has more assets relative to its liabilities. Tootsie Roll also has very high interest coverage ratio and cash debt coverage, which could be because of the relatively low level of debt. This company appears to be sufficiently generating cash flows to cover its debt obligations. Profitability Ratios 20102009 Although Tootsie Roll’s profitability ratios decreased slightly between 2010 and 2009, the results appear fairly consistent. This Company appears to provide a steady profit and rate of return to its investors.
The stock price has also fluctuated less, providing a steady price/earnings ratio. This is another indicator of a strong, steady performance by Tootsie Roll Company, and stable profitability results. Loan Justification Tootsie Roll Industries, Inc. is applying for a $2. 5 million dollar loan to open an additional distribution center in the mid-United States to assist in the production of candy. Halloween has been proven to be the number one selling period for Tootsie Roll Industries Inc. so this distribution center will provide the additional distribution needed during this busy time.
Also with the additional distribution center, Tootsie Roll Industries will be able to expand their services to additional areas throughout the world. The company is focused on finding new ways to distribute its products to a larger consumer base and the best form of doing so is by extending its distribution channels through the additional facility. Tootsie Roll Industries Inc. expects this project to increase profits by selling more to the consumer, cutting distribution costs through shorter shipping routes, and creating a faster connection to consumers in the surrounding region.
The company will reduce its risk of unforeseen circumstances, such as a natural disaster, halting operations if a distribution center were affected because it would have the option to reroute operations through another facility. Tootsie Roll Industries Inc. ’s products will be made available in more locations and will increase consumer awareness of the many products the company offers. With the projected increased revenue this distribution center will bring Tootsie Roll Industries, Inc. will be able to pay the loan back in three years rather than the traditional five years.
Uses of Loan Proceeds and Effects on Company Taking on this loan will increase liabilities by 10%. Obviously, Tootsie Roll Industries, Inc. must have a plan to use the proceeds of this loan. The biggest portion of proceeds from this loan will be used for investing in new equipment. As stated in the corporate principles, “we invest in the latest and most productive equipment to deliver the best quality product to our customers at the lowest cost” (Kimmel, 2009). In addition, Tootsie Roll will use the proceeds to expand on the distribution center so the company can keep up with demand during key periods.
One of these is Halloween. As stated above, the addition revenue generated from the distribution improvements will allow the company to repay the loan sooner. Taking on this loan will increase pressure upon the company. Additional debt is accumulated so scrutiny will be on the executives championing the distribution improvement effort to see if they succeed. Failures to repay this loan by the set due date will adversely affect future loan decisions so it is imperative the distribution center is a success. Another impact the new will have is added scrutiny to financial statements.
During the course of the loan the company will need to have accurate financial statements as well as increased communication with the bank so the bank has an idea of what is happening at the company. In this time of economic downturn, banks are looking for communication from their customers. Conclusion Tootsie Roll Industries, Inc. is applying to take on a sizeable amount of debt from this loan. However, careful planning and distribution of the funds from this loan will improve manufacturing and distribution processes. In the long-run, this loan could be to Tootsie Roll’s advantage.
Tootsie Roll has shown that they know the liquidity of the company and has a detailed plan on how to use the money. In addition, there is also an accelerated plan to repay the loan so Tootsie Roll will remain in good standing with the bank and reduce liabilities quickly. Careful planning such as this will keep Tootsie Roll aware of their financial records and remain successful while taking on more debt. References Kimmel, P. D. , Weygandt, J. J. , & Kieso, D. E. (2009). Accounting: Tools for business decision making [Appendix A]. (3rd ed. ).
Hoboken, NJ: John Wiley & Sons Small Business Administration. (n/d). Business loan application checklist. Retrieved from: http://www. sba. gov/content/business-loan-application-checklist Tootsie Roll Industries. (2011, August). Company Information. Retrieved from http://www. tootsie. com/about. php Tootsie Roll Industries, Inc. . (2011). Financial Information. Retrieved from http://www. tootsie. com/comp_financial. php University of Phoenix. (2011). Week Three Student Guide. Retrieved from University of Phoenix. Week 3 Assignment. ACC/561. Accounting Online course Web site.