H.J. Heinz Hershey
Net property, plant, and equipment $2,505,083 $1,437,702
Current liabilities 4,161,460 1,298,845
Long-term debt 3,078,128 1,541,825
Other long-term liabilities 1,757,426 529,746
Stockholders’ equity 3,108,962 902,316
a. Determine the ratio of liabilities to stockholders’ equity for both companies. Round to one decimal place.
b. Determine the ratio of fixed assets to long-term liabilities for both companies. Round to one decimal place.
c. Interpret the ratio differences between the two companies.
Answer:
a. Ratio of Liabilities to
= Stockholders’ Equity
Total Liabilities
Total Stockholders’ Equity
H.J. Heinz: $4,161,460 + $3,078,128 + $1,757,426
$3,108,962 = 2.9
Hershey: $1,298,845 + $1,541,825 + $529,746
$902,316 = 3.7
b. Ratio of Fixed Assets to
Long-Term Liabilities
Fixed Assets (net)
Long-Term Liabilities
H.J. Heinz: $2,505,083
$4,835,554 = 0.5
$1,437,702
Hershey: = $2,071,571
0.7
c. Hershey uses more debt than does H.J. Heinz. As a result, Hershey’s total liabilities to stockholders’ equity ratio is higher than H.J. Heinz’s (3.7 vs. 2.9). H.J. Heinz has a lower ratio of fixed assets to long-term liabilities than Hershey. This ratio divides the property, plant, and equipment (net) by the long-term debt. The ratio for H.J. Heinz is aggressive, with fixed assets covering only 50% of the long-term debt. That is, the creditors of H.J. Heinz have 50 cents of property, plant, and equipment covering every dollar of long-term debt. The same ratio for Hershey shows fixed assets covering 70% of the long-term debt. That is, Hershey’s creditors have $0.70 of property, plant, and equipment covering every dollar of long-term debt. This would suggest that Hershey has slightly stronger creditor protection and borrowing capacity than does H.J. Heinz.