Author Question: Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of candy since 1896. Its ... (Read 46 times)

kodithompson · **on:** Apr 25, 2021

Tootsie Roll Industries, Inc. has been engaged in the manufacture and sale of candy since 1896. Its products are sold under the familiar brand names Tootsie Roll, Tootsie Roll Pops, Charms, Blow Pops, Cella's, Mason Dots and Mason Crows. Tootsie Roll operates four plants in Illinois, New York, Tennessee and Mexico. Tootsie Roll is traded on the New York Stock Exchange and maintains its head office in Chicago, Illinois.

Tootsie Roll's financial statements for and Year 6 are provided below.

Tootsie Roll Industries Inc.

Balance Sheet

As of December 31, Year 6 ($000s)

	Year 6
Cash & marketable securities	36,758
Accounts receivable	16,207
Inventories	22,927
Prepaid expenses	2,037
Total Current Assets	77,929
Net Fixed Assets	32,099
Other assets	49,674
Total Assets	159,702
Accounts payable	8,253
Accrued liabilities	14,298
Total Current Liabilities	22,551
Long-term debt	7,306
Shareholders' Equity
Common stock	6,698
Capital in excess of par	50,820
Retained earnings	72,327
Total Shareholders' Equity	129,845
Total Liabilities & Equity	159,702

Tootsie Roll Industries Inc.

Income Statement

As of December 31, Year 6 ($000s)

	Year 6
Net sales	194,299
COGS	103,205
SG&A	54,329
EBIT	36,765
Interest expense	612
Other income (expenses), net	966
Income before income taxes	37,119
Income taxes	14,563
Net Income	22,556
Total Cash dividends	12,316
Shares Outstanding	9,645
Average price per share (4th Q)	$36.50

Selected Financial Ratios

	Year 6	Industry Avg
Net Profit Margin		8.2%
Total Asset Turnover		1.64
ROA		13.4%
Equity Multiplier		1.42
ROE		19%

Referring to the financial statements for Tootsie Roll, what amount of leverage (i.e. debt-to-equity) would Tootsie need to make its year Year 6 return on equity equal (ROE) to the industry average ROE? (Round to initial ratios to nearest percentage.)
◦ 0.3456
◦ 0.9200
◦ 1.1333
◦ 1.4200
◦ 1.7632

l.stuut · **Reply #1 on:** Apr 25, 2021

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