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Your assignment is to prepare and submit a paper on module 4 slp. Hershey’s company debt ratio and debt to equity ratio calculation Long term liabilities 795,142 (http finance.yahoo.com) Short-term li
Your assignment is to prepare and submit a paper on module 4 slp. Hershey’s company debt ratio and debt to equity ratio calculation Long term liabilities 795,142 (http finance.yahoo.com) Short-term liabilities = $166,875 (http://finance.yahoo.com)
Equity $1,604,834
Debt Ratio = .
Total Liabilities
Total Assets
Total liabilities include both the current and non-current liabilities. (http://accountingexplained.com/financial/ratios/debt-ratio)
Total liabilities = 1,408,022+ $1,795,142+ $434,068+ $104,204+ $11,218= $3,752,654
Total liabilities = $3,752,654
Total assets =$ 5,357,488
Debt ratio= 3,752,654/ 5,357,488
Or
Debt Ratio=
Total Liabilities
Total liabilities+ equity
= 3,752,654/ (3,752,654+1,604,834)
= 3,752,654/ 5,357,488
Debt ratio =0.7
debt-to-equity ratio =
Total Liabilities
Total equity
Total liabilities = $3,752,654
Total equity = $1,604,834
Debt-to-equity ratio = 3,752,654/ 1,604,834
=2.34
Debt ratio
A debt ratio of 0.5 or less is suitable. With this sort of a debt ratio it would imply that, half of this firm’s assets are funded by debts. However with a debt ratio of 0.7, as is the case here, it means that more than half of Hershey’s company assets are financed by debt. This might be because Hersheys company is capital intensive and therefore depends more on debt compared to service-based firms,
The debt-to-equity ratio alternatively analyzes the company’s debt to the stockholder equity.
A debt ratio of 0.7 may indicate a debt-to-equity ratio greater than 1. In the two cases, this number signifies a firm relying more on credit for its operations. These ratios are too high and I would recommend Hersheys company to take steps to pay off its debt.
Competitors
1. Nestle
debt-to-equity ratio =
Total Liabilities
Total equity
Total liabilities = $56.3 billion
Total equity = $64.14 billion
Debt-to-equity ratio = 56.3/ 64.14
=0.87
Nestle company has a lower debt-equity ratio. This is because equity provides majority of the financing rather than debt.
2. Mondelez international inc (MDLZ)
debt-to-equity ratio =
Total Liabilities
Total equity
Total liabilities = $40,184,000 .
Total equity = $32,373,000 .
Debt-to-equity ratio = 40,184,000 ./ 32,373,000 .
=1.24
Mondelez international Inc,debt-to-equity ratio is greater than one which means their assets are primarily financed with debt.
Conclusion
With a debt ratio of 0.7 which is less than 1 signifies that Hershey’s company has more assets than liabilities. This indicates that their risk is relatively high in comparison to the production industry mean. Financial ratios are essential in the financial evaluation of an organization. They take an important role in figuring out whether or not a company is making profits as well as if the business is able to meet its and long and short term financial requirements. Financial ratios are additionally utilized by creditors to ascertain whether or not a company could get credit services.
References
http://finance.yahoo.com/q/bs?s=HSY+Balance+Sheet&annual
Debt Ratio Formula | Example | Analysis | Accounting Explained. (n.d.). http://accountingexplained.
