Evaluating Wm. Wrigley Jr. Company
Name
BUS 401- Business Finance
Instructor
Date
Evaluating Wm. Wrigley Jr. Company
This paper will outline the Wrigley company and how it started from scratch to
becoming the world’s largest company in the country and the world. It will also entail charts,
graphs along with great information on how the company became such a success and still is in
2013. When you think of Wrigley people automatically think of gum and not of other products
they produce in the company. In 2007 Wrigley was one of the biggest companies when it came
to sales.
Who is the great founder of this fortune 500 company that keeps on making dollars in
2013? William Wrigley was a Philadelphia native born at the height of the US Civil War to
William Wrigley Sr. Wrigley earned his income and salesmanship at a young age by becoming
a sales soap man as teenager. He finally decided to leave Philadelphia and relocate to the great
city of Chicago to pursue his dream of owning his own empire to leave behind to his legacy.
After arriving in Chicago he saw the business world was a lot different there than Philadelphia
but his still pushed on to pursue and conquer his dream. In 1892, he started juicy fruit gum they
succeed to become the world’s largest chewing gum in 1892 and still in 2013. In 1893 he
introduced Wrigley spearmint as its next line of production.
Wrigley took chances and gambles on his company in order to make it the success it is.
He even has a baseball field named after him. Wrigley began to expand to such items as
lifesavers candies which came in spearmint and fruity flavors for all to enjoy, which was
purchased from Kraft products. Wrigley has had a great mission and value statements that
has made them the greatest company along with Kraft and Johnson & Johnson. It’s famous
mission statement is “creating simple pleasures to brighten everyone’s day” (Wm. Wrigley
Jr. Company, 2012). It purpose for the company as follows” Wrigley is a company
without boundaries Because that’s how we see the world .Whether it’s a piece of gum
to keep your mouth healthy, fresh, and clean .Or a handful of candy to put a smile on
your face .The goodness our products bring never gets lost in translation .Our creativity
drives us forward .To new places. New products,new occasions, and new ways for the
world to enjoy Wrigley .So whenever you want to add a little extra flavor to
your day.We’re right at your fingertips and right by your side(Wm. Wrigley Jr. Company,
2012)http://www.wrigley.com/global/about-us/our-vision-and-purpose.aspx).
Being able to understand the essentials for Wrigley companies in reference to their
financials is a must. Wrigley offers many types of products that are consumable. The
basis to change but also remain the same in product lines such as chewing gum has kept
consumers loyal and constantly coming back for more. Financially as we explore about
Wrigley we will look into the company by evaluation of the financial leverage and
liquidity.
Liquidity in the Wm. Wrigley Jr. Company, gives the explanation on whether the
firm has capability to alter their assets into cash to compensate for the long and short
term debts of the company (Analyst, 2007). Having the ability to look at other
companies and how they perform gives companies like Wm. Wrigley Jr. Company a
closer look on how others are performing and their own performance in comparison. In
the chart below there is a liquidity shown for Wm. Wrigley Jr. Company.
Liquidity Ratios
Current ratio
1.41
Quick Ratio
0.84
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
Current ratio
Quick Ratio
The current ratio has a average of 1.40% with the quick ratio showing some signs of
over leverage with under 1%.
Current Ratios are the best calculations on how the short term debts can be paid off.
Since the quick ratios give more of a comparison of the current liabilities with the
current assets, this gives companies a much clearer picture on the current and future
operations (Gallinger, 1997).
Financial Leverage is also an evaluation that companies must few. Being on the
high leverage scale can cause bankruptcy risk and financial hardships for companies.
On the other side of high leverage the shareholders ROI will rise (Nissim& Penman,
2003). Looking into the Debt capital Ratio and Debt-to-Equity Ratio give a clear
understanding of the company’s Financial Leverage. Below is a chart of the financial
leverage for Wm. Wrigley Jr. Company and. The information supplied shows that the
Debt Ratio is quite lower than the Debt-to-equity Ratio.
Financial Leverage
Debt Ratio
Debt-to-Equity Ratio
0.46
0.857
Debt Ratio & Debt-to-Equity Ratio
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
Debt Ratio
Debt-to-Equity Ratio
There are many other factors that weigh in the financial portion of Wm. Wrigley Jr.
Company. The sales the company has in wages and what is earned is the net income is
divided by the company’s revenue is the profit margin. In order for a company to see if
their revenue is growing the total asset turnover ratio will be completed and the most
useful. In every major company the stockholders equity should be part of the financial
leverage. The company will take the stockholders’ equity and divide it by the total assets.
By taking all of the mentioned ratio we can get the Return on equity for Wm. Wrigley Jr.
Company, this weighs out to be .22%
ROE
Profit Margin
Total Asset
Turnover
Equity Multiplier
ROE
0.117
1.030
1.86
0.22
ROE
2.000
1.500
1.000
0.500
0.000
Profit Margin Total Asset TurnoverEquity Multiplier
ROE
The Economic Value Added also called the (EVA) measures how much
shareholders amount is maintained by the head operators of the company. We take a
look at the Return on Investment, net investment and the cost of capital. Below are the
graphs that show how the EVA is sourced for Wm. Wrigley Jr. Company.
Economic Value
Added
Return on Investment
12.1%
Net Investment
Cost of Capital
$
5,231,512
5.50%
EVA
$
344,271.84
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Return on
Net
Investment Investment
Cost of
Capital
EVA
Wm. Wrigley Jr. Company must look at the projections of operating
expense and know when the company will need some outside financing looking at the
graph and chart below we are able to note that Wm. Wrigley Jr. Company, can break
even when there is 13% sales growth.
Projected Sales Growth
0%
5%
10%
Break Even Growth
Rate
13%
20%
Increase in Assets Required
$
$
261,575.60
$
523,151.20
$
675,434.52
$
1,046,302.40
Addiiton to Retained Earnings
$
322,167.00
$
338,275.35
$
354,383.70
$
363,761.61
$
386,600.40
External Financing Required ($)
$300,000.00
$200,000.00
$100,000.00
$0%
5%
10%
15%
20%
$(100,000.00)
25%
External Financing
Required
$(200,000.00)
$(300,000.00)
$(400,000.00)
Projected Sales Growth (%)
Wm. Wrigley Jr. Company is one high competitive company when it comes to
sales. The company started from scratch and still stands strong today with sales and total
assets.
The recommendations for the Wm. Wrigley Jr. Company are to invest in this company,
who has shown over time they are still strong competitors and have the financials to back
their name and investments.
Balance Sheet
December 31,
2007
December 31, 2008
E
Assets
Current Assets
Cash and cash equivalents
Short term investments, at
ammortized costs
Accounts Receivables (Less
allowance for doubtful accounts)
Inventories
$
278,843
635
$
306,727.30
698.50
469,221
516,143.10
Finished Goods
280,712
308,783.20
Raw Materials, WIP and supplies
339,370
373,307.00
Total Inventories
620,082
Other Current Assets
180,997
Total Current Assets
1,549,778
Deferred Charges and other assets
Goodwill
214,457
1,422,957
682,090
199,096.70
1,704,756
235,902.70
1,565,252.70
Other Tangible assets
Property,plant and equipment, at
cost:
484,256
532,681.60
Land
Buildings and building equipment
81,231
734,623
89,354.10
808,085.30
Machinery and equipment
2,055,063
Total property, plant and equipment
2,870,917
Less accumulated Depreciation
1,310,853
Net property, plant and equipment
2,260,569.30
3,158,009
1,441,938.30
1,560,064
$
5,231,512
December 31,
2007
1,716,070
$
5,754,663.2
December 31, 2008
E
Short Term Debt
$
-
-
Accounts Payable
371,349.00
408,483.90
Accrued Expenses
500,552.00
550,607.20
Dividends Payable
79,965.00
87,961.50
Income and other Taxes Payable
149,254.00
164,179.40
1,101,120.00
1,211,232.00
312,912.00
344,203.20
Long Term Debt
1,000,000.00
1,027,364.30
Total Liabilities
Stockholders' Equity
Preferred Stock -no par value
Authorized:20,000 shares
Issued:None
Common Stock -no par value
Common Stock
Authorized:1,000,000 shares
2,414,032.00
2,582,799.50
14,084.00
14,084.00
Total Assets
Liabilities and Shareholders' Equity
Current Liabilities
Total Current Liabilities
Other noncurrent liabilities
Issued
Class B Common stock - convertible
Authorized: 300,000 shares
Issued
1,412.00
1,412.00
140,357.00
140,357.00
Retained earnings
Common Stock and Class B Common
Stock in treasury, at cost
Accumulated other comprehensive
income (loss)
3,264,484.00
3,618,867.70
(712,841.00)
(712,841.00)
109,984.00
109,984.00
Total stockholders' Equity
Total Liabilities and Stockholders'
Equity
2,817,480.00
$
5,231,512.00
3,171,863.70
$
5,754,663.20
Additional Paid in capital
Income Statement
Net Sales
Cost of Sales
Restructuring Charges
Gross Profit
Selling, General and Administrative Exepenses
Operating Income
Interest Expense
Investment Income
Other income(expense) net
Earnings before income tax
Income Tax (32.2%)
2007
$
5,389,100
$
2,535,254
$
13,064
$
2,840,782
$
1,878,010
$
962,772
$
(66,004)
$
10,610
$
24,785
$
932,163
$
2008E
$
5,928,010
$
2,788,779.40
$
14,370.40
$
3,124,860.20
$
2,065,811.00
$
1,059,049.20
$
(72,604.40)
$
11,671.00
$
27,263.50
$
1,025,379.30
$
Net Earnings
300,158
$
632,005
330,173.80
$
695,205.50
Addition to Retained Earnings
$ $
309,838 340,821.80
$ $
322,167 354,383.70
Tax Rate (Income Tax/EBIT)
32.20%
Dividends Paid
Dividend Payout Ratio (Cash Dividend/Net
Income)
Sales growth rate
Assumptions
Dividend Payout Ratio remains constant
Costs are a constant percentage of sales
49.02%
10%
References
Analyst, D. M. (2007, November 1). Wmwrigleyjr. company equity valuation and. Retrieved
from http://mmoore.ba.ttu.edu/ValuationReports/Fall2007/Wrigley.pdf
Gallinger, G. W. (1997). The current and quick ratios: Do they stand up to scrutiny?: Are they
only window dressing? Business Credit, 99(5), 22-23. Retrieved from
http://search.proquest.com/docview/230143662?accountid=32521
Hickman, K. A., Byrd, J. W., & McPherson, M. (2013).Essentials of finance. San Diego, CA:
Bridgepoint Education Inc.
Nissim, D., & Penman, S. H. (2003).Financial statement analysis of leverage and how it
informs about profitability and price-to-book ratios. Review of Accounting Studies, 8(4),
531-560. Retrieved from
http://search.proquest.com/docview/208530525?accountid=32521
Wm. Wrigley Jr. Company. (2012). Retrieved from http://www.wrigley.com/global/aboutus/the-story-of-wrigley.aspx