Wrigley and Hershey

Wrigley and Hershey

When comparing the profitability of Wrigley and Hershey there are many ratios to consider. Two of the main profitability ratios are gross profit margin and net operating profit margin. Gross profit margin is used as an indicator of a business's financial strength. It shows how efficient a company is by comparing their revenues and costs of goods sold. When comparing the gross profit margin for Wrigley and Hershey, we can see that Wrigley has a distinct advantage. The GPM for Wrigley was 54.2% while Hershey was only at 38.7%. The decision gets a little more difficult when we compare the companies’ net operating profit margins. Net operating profit margin compares a company’s net operating income to sales. This ratio gives us an idea of how each company controls their overall costs not just the cost of goods sold. When looking at this ratio for both Wrigley and Hershey, we can see that they are actually very similar. Wrigley has a slight edge with a ratio of 12.8% compared to Hershey at 11.4%. When comparing profit margins for Wrigley and Hershey it is tough to give a major edge to either company. The biggest profitability edge that sets the two companies apart is shown in their ROE and RNOA.
When reviewing the ROE (return on equity) for both companies you can see that Hershey looks to have a big advantage over Wrigley. The ROE for Hershey is 45.7%, while Wrigley is much lower at 23.5%. ROE does show how effect a company is at generating profits from stockholders equity. ROE is a company’s return on operations plus their return on non-operations. Good investors will concentrate on the return from operations (RNOA). When we look at the RNOA for Hershey we can see they are at 21%. This means that (21/45.7=46%) 46% of their ROE is generated from operating activities. When we compare this to Wrigley, we can see that (19.1/23.5=81%) 81% of their ROE is generated from operations. This shows that Wrigley is less dependent on non-operating activities to generate...

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