1. 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

2. 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

3. 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

4. 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

5. LEVERAGE RATIOS DEBT TO ASSETS- TOTAL DEBTS/ TOTAL ASSETS
1984 = = = 40.03
NESTLE, 1997 = 23.60
MERCK, 1997 = 8.71
DEBT TO EQUITY- TOTAL DEBT/ EQUITY
1984 = = = 2.85
NESTLE, 1997 = 1.24
MERCK, 1997 = 1.05

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

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

8. GROWTH RATIOS EPS= NET INCOME/ NO. SHARES OUTSTANDING
HERSHEY NESTLE MERCK
5 YR. AVE
5 YR. SALES
5 YR. NI

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