THE HERSHEY COMPANY Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

FINANCIAL ANALYSIS

A detailed financial analysis shows us about the performance of the company. Hershey company’s performance is best in the chocolate industry. The profitability ratios of the company all show an average return of around 10-20%. This shows that the company is generating good returns for the business. The asset turnover ratios also show better asset utilization and efficiency of the company. Receivables turnover and inventory turnover show good working capital management by the company. On the other hand, the liquidity of the company is good. The current ratio of 2 is regarded as safe, however, the company’s average is 1.5 times. Still, it has enough short term assets to pay off short term liabilities as they fall due. The financial leverage ratio is also satisfactory at around 0.65 times. This means the company is not aggressive in issuing debt and is managing its capital structure. On the other hand the interest coverage ratio of average 13 times is indicated that the company will have no problems paying its debt obligations. Finally, market ratios, especially the P/ E ratio show that the company has growth stocks. It shows the true potential of the future growth of the company. A P/ E ratio of 30 times in 2013 (actual) is impressive. However, the price-to-book ratio shows that the share price of the company is overvalued. The cash flow statement of the company also shows that the company is generating cash in each year from its operating, investing and financing activities. The company is also paying dividends each year to its shareholders and has a dividend payout ratio of an average 60 %. This would also attract further investors that invest in stocks that pay high dividends. Finally, the EPS also shows good profitability per share being generated by the company.

APPENDIX

	2010	2011	2012	2013	2014	2015	2016
Income Statement (APPRENDIX-A)	Actual	Actual	Actual	Actual	Forecast	Forecast	Forecast
Sales	$5,671.01	$6,080.79	$6,644.25	$7,146.08	$7,503.38	$8,028.62	$8,510.34
Cost of Goods Sold	$3,242.16	$3,503.80	$3,743.89	$3,864.53	$4,098.26	$4,346.13	$4,609.00
COGS (Growth)		8%	7%	3%	6%	6%	6%
Gross Margin	43%	42%	44%	46%	45%	46%	46%

Selling, Gen & Admin Expenses	$1,424.98	$1,472.79	$1,692.05	$1,918.69	$2,121.03	$2,344.70	$2,591.96
S&GA (Growth)		3%	15%	13%	11%	11%	11%
Depreciation	$0.00	$0.00	$0.00	$0.00	$0.00	$0.00	$0.00
EBIT	$1,003.87	$1,104.20	$1,208.32	$1,362.86	$1,284.09	$1,337.79	$1,309.38

Net Interest Expense	($90.50)	($92.20)	($95.60)	($88.40)	($87.82)	($87.25)	($86.67)
N. Int Exp (Growth)		2%	4%	-8%	-1%	-1%	-1%
Unusual Items	($104.50)	($49.20)	($97.20)	($23.20)	($20.76)	($18.59)	($16.63)
Unusual Items (Growth)		-53%	98%	-76%	-10%	-10%	-10%
Taxes	($299.07)	($333.88)	($354.65)	($430.85)	($414.95)	($434.88)	($425.74)
Net Income	$509.80	$628.92	$660.87	$820.41	$760.55	$797.07	$780.33
Shares Outstanding (Millions)	230.31	229.92	228.34	227.20	$227.20	$227.20	$227.20
Earnings Per Share	$2.21	$2.74	$2.89	$3.61	$3.35	$3.51	$3.43

Allocation of Net Income:
Dividends	$283.43	$304.08	$341.21	$393.80	$387.08	$405.67	$397.14
Change in Equity	$226.37	$324.83	$319.66	$426.61	$373.47	$391.41	$383.18

Balance Sheet (APPENDIX-B)
Assets	2010	2011	2012	2013	2014	2015	2016
Current Assets	Actual	Actual	Actual	Actual	Forecast	Forecast	Forecast
Cash & Equivalents	$884.64	$693.69	$728.27	$1,118.51	$1,118.51	$1,118.51	$1,118.51
Receivables	$390.06	$399.50	$461.38	$477.91	$501.81	$536.93	$569.15
Inventories	$533.62	$648.95	$633.26	$659.54	$692.52	$740.99	$785.45
Other Current Assets	$196.89	$304.42	$290.57	$231.37	$242.94	$259.95	$275.54
Total Current Assets	$2,005.22	$2,046.56	$2,113.49	$2,487.33	$2,555.78	$2,656.38	$2,748.66

Property, Plant & Equip. (PPE)	$3,324.76	$3,588.56	$3,560.63	$3,779.39	$3,946.95	$4,121.93	$4,304.67