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Ratio Analysis Performance management is an essential function in maintaining a business.

Managers frequently utilize a variety of tools and techniques that the effectiveness of the organizations operations. Accounting is the function responsible for documenting, reporting and analyzing an organizations financial data. Financial statements are customarily the final output of the organizations accounting system. Management utilizes financial ratios to interpret their financial statements throughout the performance management process (Gibson, 2011, p. 465). Financial ratios consists of liquidity, asset turnover, profitability, and financial leverage calculations. Liquidity ratios assist management in determining how well their organization can meet shortterm financial obligations. Asset turnover ratios produce indicators that inform management how well an organization utilizes assets to produce sales revenue. Profitability ratios calculate the individual profit values earned from each good or service. Financial leverage calculates the longterm solvency of an organization (Gibson, 2011, p. 465). The current ratio is derived by dividing the total current assets by the total current liabilities. This ratio tests the liquidity of an organization. This ratio illustrates the working capital relationship of current assets available to meet the organizations current obligations (Kimmel, Weygandt, & Kieso, 2009, p.59). In calculating the current ratio for Tootsie Roll it was found that they have $3.45 of current assets to meet $1.00 of its current liability. CURRENT RATIO = TOTAL CURRENT ASSETS/ TOTAL CURRENT LIABILITIES CURRENT RATIO = $3.45

The quick ratio is derived by obtaining the total quick assets of an organization by its total current liabilities. There are occasions that an organization might carry heavy inventory as part of its current assets, which could be obsolete or moving slowly. This ratio is considered an acid test of liquidity for an organization. This ratio expresses the true working capital relationship of its accounts receivable, cash, notes receivable, and pre-paid available to meet the organizations current obligations (Quick ratio, 2012). In calculating the quick ratio for Tootsie Roll it was found that they have $13.03 of quick assets to meet $1.00 of its current liability. QUICK ASSETS = TOTAL ASSETS Inventory QUICK ASSETS = $755,323 QUICK RATIO = TOTAL QUICK ASSETS / TOTAL CURRENT LIABILITIES QUICK RATIO = 13.03

The debt to equity ratio is derived by dividing the total debt by the stockholder equity. The debt to equity ratio is utilized to analyze if the degree of financial leverage an organization is using enhances their return. An increased ratio may indicate that further increases in debt caused by purchases of inventory or fixed assets should be kept under control. In order to improve this ratio, management must pay off debt or increase the amount of earnings retained in the business until after the date listed on the balance sheet (Kimmel, Weygandt, & Kieso, 2009, p.687). In calculating the debt to equity ratio for Tootsie Roll it was found that the ratio of 27% shows that every dollar of assets was financed by 27 cents of debt. DEBT TO EQUITY = TOTAL DEBT / STOCKHOLDER EQUITY DEBT TO EQUITY = .27

The debt to asset ratio is derived by dividing total debt by total assets. This ratio measures the percentage of organizations assets that are financed with debt. This ratio measures the percentage of assets financed by creditors compared to the percentage that has been financed by business owners. To improve this ratio, management must increase the value of assets or pay off debt (Kimmel, Weygandt, & Kieso, 2009, p.60). In calculating the debt to assets ratio for Tootsie Roll it was found that 21% of assets were financed by creditors versus business owners. DEBT TO ASSETS = TOTAL DEBT / TOTAL ASSETS DEBT TO ASSETS = .21

The earnings per share ratio is derived by subtracting preferred stock dividends from net income then dividing this number by average common share outstanding. This ratio measures the net income earned on each share of common stock. Stockholders customarily think in terms of the number of shares they own, plan to buy, or sale (Kimmel, Weygandt, & Kieso, 2009, p.55) . In calculating the earnings per share ratio for Tootsie Roll it was found that $.09 was the net income earned on each share of common stock. EARNINGS PER SHARE = NET INCOME PREFERRED STOCK DIVIDENDS AVERAGE COMMON SHARES OUTSTANDING EARNINGS PER SHARE = 0.09

The price earnings ratio is derived by dividing stock prices per share by earnings per share. This ratio measures an organizations stock changes based on investors expectations regarding an

organizations proposed earnings per share (Kimmel, Weygandt, & Kieso, 2009, p.676). In calculating the price earnings ratio for Tootsie Roll it was found that an investor is willing to pay $10.46 for $1 of current earnings.

Financial ratios provide measures for comparative analysis. Managers use comparative analysis in order to analyze their organizations financial ratio indicators against competitors or industry standards. Organizations that do not measure up to industry standards most likely are not operating efficiently. Indicators above the industry standards show an organization is functioning better than other organizations under the current market conditions. Gibson, C. (2011). Financial reporting and analysis (12th ed.). Mason, OH: South-Western Quick ratio. (2012). Retrieved September 7, 2012, from http://www.investopedia. com/terms/q/quickratio.asp#axzz265lVK97F Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Accounting: Tools for business decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons

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