INTERNAL ASSESSMENT FINANCE/ACCOUNTING THREE DECISION AREAS; INVESTMENT DECISION- WHAT ASSETS TO BUY FINANCING DECISION- WHAT IS THE BEST CAPITAL STRUCTURE DIVIDEND DECISION- WHAT PER CENT OF EARNINGS TO PAY TO STOCKHOLDERS

RATIO ANALYSIS PROVIDE A PICTURE AT A POINT IN TIME MEASURES STRENGTH AND WEAKNESS CAN PROVIDE A COMPARISON WITH INDUSTRY NORMS PROVIDES A COMPARISON WITH INDUSTRY LEADERS NEEDS TO BE LOOKED AT OVER TIME

TYPES OF FINANCIAL RATIOS LIQUIDITY-MEASURES ABILITY TO PAY SHORT TERM DEBT LEVERAGE - THE EXTENT OF DEBT IN THE CAPITAL STRUCTURE ACTIVITY- HOW EFFECTIVELY A FIRM USES ITS ASSETS PROFITABILITY- HOW MUCH VALUE DOES THE FIRM CREATE GROWTH-MEASURES THE FIRM’S ABILITY TO MAINTAIN ITS ECONOMIC POSITION

LIQUIDITY RATIOS LIQUIDITY RATIOS CURRENT RATIO=CURRENT ASSETS/CURRENT LIABILITIES 1984 = 1.90 1989 = 1.99 1997 = 1.30 NESTLE, 1997 = 1.22 MERCK, 1997 = 1.47

LEVERAGE RATIOS DEBT TO ASSETS- TOTAL DEBTS/ TOTAL ASSETS 1984 = 13.62 1989 = 13.99 1997 = 40.03 NESTLE, 1997 = 23.60 MERCK, 1997 = 8.71 DEBT TO EQUITY- TOTAL DEBT/ EQUITY 1984 = .18 1989 = .23 1997 = 2.85 NESTLE, 1997 = 1.24 MERCK, 1997 = 1.05

ACTIVITY RATIOS TOTAL ASSET TURNOVER- SALES/TOTAL ASSETS 1984 = 1.80 1989 = 1.35 1997 = 1.33 NESTLE, 1997 = 1.27 MERCK, 1997 = .94

PROFITABILITY RATIOS NET PROFIT MARGIN- NET INCOME/ SALES 1984 = 5.74% 1989 = 7.07% 1997 = 7.82% NESTLE, 1997 = 5.72% MERCK, 1997 = 19.52% RETURN ON EQUITY 1984 = 16.44% 1989 = 16.12% 1997 = 39.43% NESTLE, 1997 = 16.41% MERCK, 1997 = 37.54%

GROWTH RATIOS EPS= NET INCOME/ NO. SHARES OUTSTANDING HERSHEY NESTLE MERCK 1997 2.25 3.48 3.83 5 YR. AVE. 1.69 3.14 2.80 5 YR. SALES 5.50 5.45 20.37 5 YR. NI 9.25 8.39 18.96

RETURN ON EQUITY EFFECTIVENESS X EFFICIENCY X LEVERAGE = RETURN ON EQUITY (SALES/ TOTAL ASSETS) X (NET INCOME)/ SALES X (TOTAL ASSETS)/ EQUITY = ROE HERSHEY, 1997 (000) (4397/3256) X (343/4397) X (3256/905) = 39.43