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INTEROFFICE MEMORAND UM
TO:
AUDIT TEAM
FROM:
SENIOR PARTNER
SUBJECT:
TOOTSIE ROLL’S FINANCIAL STATEMENTS
DATE:
6/25/2017
Tootsie Roll Industries is looking to hire a new accounting firm to do their auditing work. We are one of a
few accounting firms they have contacted as possible candidates to be their new auditor. If Tootsie Roll
decides to go with us as their new auditor, having them as a client will bring in approximately an extra $4.5
million in revenue for us each year. Needless to say, this would be a huge account for us!!
Next Friday, their CEO & CFO will be hearing sales presentations from various accounting firms to
determine which firm Tootsie Roll will hire to be their next auditors. They are going to decide which firm to
hire based on how well each accounting firm’s audit team is able to analyze & interpret their previous year
financial statements and the level of professionalism of their presentation.
I am sending you and the rest of your audit team to Tootsie Roll’s headquarters on Friday to make our sales
pitch to them. If they determine we did the best job analyzing their financial statements and presenting the
information we will win the account and each of you will receive a $5,000 bonus for making it happen.
In your presentation make sure you address the following questions:
Income Statement
 Did total revenue increase or decrease between 2009 & 2010? How much?
 What was 10’s net income? Did it increase or decrease compared to 09? How much?
 What was Tootsie Roll’s profit margin (p.265) and gross profit margin (p.419) in 09 & 10?
 What was Tootsie Roll’s times interest earned ratio in 09 & 10?
 Why did net income increase/decrease? State the major reason(s).
 Did EPS increase or decrease between 09 & 10? How much?
Retained Earnings Statement
 Does Tootsie Roll’s pay dividends? If so, how much in 09 & 10?
 What percent of net income did they pay out in cash dividends in 09 & 10?
 Classify Tootsie Roll’s as a growth or income company
Balance Sheet
 What was Tootsie Roll’s working capital, current ratio, acid-test ratio, and debt to equity ratio in
09&10?
 What is their debt-to-equity ratio? (in a percentage)
 What are the major changes in accounts between 09 & 10?
Cash Flows
 Did cash increase or decrease due to operating activities? Compare 09 & 10.
 Describe what happened with cash in investing activities. Compare 09 & 10.
 Describe what happened with cash in financing activities. Compare 09 & 10.
 What was the major reason why cash increased/decreased throughout the 2010 year?
Overall Evaluation
 How did Tootsie Roll’s do in 2010 compared to 2009? Better? Worse? No change?
 Why did it do better/worse/no change?
 What is the overall financial condition of Tootsie Roll’s as a company? Good? Bad?
 What predictions can you make about Tootsie Roll’s in the next few years?
In addition to analyzing Tootsie Roll’s financial statements you will find valuable information by looking at
their Letter to the Shareholders and the Management Discussion & Analysis section of their annual report.
Your presentation on Friday should be about 15 minutes long and everyone in your audit team needs to
present at least some portion of your findings. Business professional attire is strongly encouraged. Be ready to
answer any questions from Tootsie Roll’s CEO and CFO. If you have any questions feel free to contact me.
Good luck!!
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