FINANCIAL STATEMENT ANALYSIS

ANALYSIS

The Hershey Company

Submitted by –
 Ajay Chaudhary (IGSM/PG2020/0711)
 Akansha Sinha (IGSM/PG2020/0316)
Submitted to -  Aniket
 CA. Sapna Jain  Ashish Kumar Verma
 Pooja (IGSM/PG2020/0721)
 Varun (IGSM/PG2020/0724)
 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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ACKNOWLEDGEMENT
With immense pleasure, we are presenting “Financial Statement Analysis of The Hershey Company” as
a part of the curriculum of ‘Post Graduation Diploma in Management. We wish to thank all the people
who gave us support.

We express our profound thanks to CA. Sapna Jain's guide and all those who have indirectly guided
and helped us in preparation for this report.

We also extend gratitude to all staff and our colleagues of the College of Management, who provided
moral support, a conducive environment, and the much-needed inspiration to conclude the project in
time, and a special thanks to group mates who are an integral part of the project.

Thanking you.

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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PREFACE
The successful completion of this document was a special experience for us due to the fact the
experience was new, we finished with better knowledge about how to interpret various figures of
financials of a company. The experience which we gained by doing this project was essential at this
turning point of our career. This report is being submitted which contains a detailed analysis of the
research undertaken by us.

The financial statement analysis of The Hershey Company includes reformulation of income statement,
balance sheet, calculating dividend, bottom line profitability through Return on Comprehensive Earning
(ROCE), Abnormal Earning (AE), target price along with Return on Net Operating Assets (RNOA),
Return on Operating Assets (ROA), Abnormal Operating Income (AOI), and Free Cash Flows (FCF).

Content

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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Serial No. Particulars Page No.

3 Introduction 4

4 Income statement of The Hershey Company

Reformulated Income Statement of The Hershey

5
Company

6 Balance Sheet of The Hershey Company

Reformulated BalanceINTRODUCTION
Sheet of The Hershey
7
Company

8 Dividend

Bottom Line Profitability (ROCE, AE) and Target

9
Price

10 RNOA, ROA, AOI, and Free Cash Flows (FCF)

 The Hershey Company is an American multinational confectionery company with its
headquarters in Hershey, Pennsylvania, US.

 It was founded in the year 1894 by Milton S. Hershey with incorporation in the year 1908 under
the name Hershey Chocolate co. and got reorganized as the Hershey Chocolate Corporation in
the year 1927. Hence, the age of the company until 2019 is 126 years.

 Hershey’s chocolate is available across the US and in over 60 Countries worldwide in the sector
of food processing.

 The total Turnover of the company is US$ 8,150 million as of 2020.

 The net worth of the company as of 19st March 2021 is US$ 32.33 billion.

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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 Hershey’s market cap is US$ 22.67B (as of 21st March, 2021).

 Hershey’s stock price is US$ 154.70 (as of 19st March, 2021).

 Total outstanding shares are 207.17M (as of 12st February, 2021).

 Source: Hershey

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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INCOME STATEMENT OF THE HERSHEY COMPANY

Particulars (in thousands, except per share amounts)
For the years ended December 31, 2020 2019 2018
Net sales 81,49,719.00 79,86,25.00 77,91,069.00
Cost of sales 44,48,450.00 43,63,774.00 42,15,744.00
Gross profit 37,01,269.00 36,22,478.00 35,75,325.00
Selling, marketing and administrative
18,90,925.00 19,05,929.00 18,74,829.00
expense
Long-lived and intangible asset impairment
9,143.00 1,12,485.00 57,729.00
charges
Business realignment costs 18,503.00 8,112.00 19,103.00
Operating profit 17,82,698.00 15,95,952.00 16,23,664.00
Interest expense, net 1,49,374.00 1,44,125.00 1,38,837.00
Other (income) expense, net 1,38,327.00 71,043.00 74,766.00
Income before income taxes 14,94,997.00 13,80,784.00 14,10,061.00
Provision for income taxes 2,19,584.00 2,34,032.00 2,39,010.00
Net income including noncontrolling
12,75,413.00 11,46,752.00 11,7151.00
interest
Less: Net loss attributable to noncontrolling
-3,295.00 -2,940.00 -6,511.00
interest
Net income attributable to The Hershey
12,78,708.00 11,49,692.00 11,77,562.00
Company
Net income per share—basic:
Common stock 6.30 5.64 5.76
Class B common stock 5.72 5.12 5.24
Net income per share—diluted:
Common stock 6.11 5.46 5.58
Class B common stock 5.71 5.10 5.22
Dividends paid per share:
Common stock 3.15 2.99 2.76
Class B common stock 2.87 2.72 2.50

Notes to Income Statement (in thousands US $)

OTHER (INCOME) EXPENSE, NET      

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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Other (income) expense, net reports certain gains

and losses associated with activities not directly
related to our core      
operations. A summary of the components of other
(income) expense, net is as follows:      
For the years ended December 31, 2020 2019 2018
Write-down of equity investments in partnerships
qualifying 1,25,579.00 50,457.00 50,329.00
for historic and solar tax credits (see Note 10)
Non-service cost components of net periodic
benefit cost relating to pension and other post- 12,560.00 20,415.00 20,672.00
retirement benefit plans (see Note 11)
Other (income) expense, net 188.00 171.00 3,765.00
Total 1,38,327.00 71,043.00 74,766.00

Interest Expense (in thousand US $ )

For the years ended December 31 2020 2019 2018
Interest expense 1,60,204 1,57,707 1,51,950
Capitalized interest -6,733 -5,585 -5,092
Interest expense -4,097 -7,997 -8,021
Interest income 1,53,471 1,52,122 1,46,858
Interest expense, net 1,49,374 1,44,125 1,38,837

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REFORMULATED INCOME STATEMENT OF

THE HERSHEY COMPANY
(in thousand US $, except share data)
Particulars
2020 2019 2018
Operating Revenue 81,49,719.00 79,86,252.00 77,91,069.00
Cost of sales 44,48,450.00 43,63,774.00 42,15,744.00
Gross profit 37,01,269.00 36,22,478.00 35,75,325.00
Operating Expense
Selling, marketing and administrative expense 18,90,925.00 19,05,929.00 18,74,829.00
Long-lived and intangible asset impairment
9,143.00 1,12,485.00 57,729.00
charges
Business realignment costs 18,503.00 8,112.00 19,103.00
Other (income) expense, net 1,38,327.00 71,043.00 74,766.00
Operating Income from sales (before
16,44,371.00 15,24,909.00 15,48,898.00
tax)

Taxes
Taxes as reported 2,19,584.00 2,34,032.00 2,39,010.00
Tax on financial items 31,368.54 31,368.54 31,368.54
Operating Income from sales (after tax) 13,93,418.46 12,59,508.46 12,78,519.46
Other operating income (net-of-tax-items)
Foreign currency translation adjustments:
Foreign currency translation (losses) gains
-13,767.00 13,141.00 —
during period
Reclassification to earnings due to the sale of
businesses
Pension and post-retirement benefit plans:
Net actuarial (loss) gain and prior service cost -30,104.00 -30,103.00 -30,102.00
Reclassification of tax effects relating to U.S.
— — —
tax reform
Reclassification to earnings 25,086.00 25,086.00 25,086.00
Cash flow hedges:
(Losses) gains on cash flow hedging
1,100.00 1,100.00 1,100.00
derivatives
Reclassification of tax effects relating to
— — —
U.S. tax reform
4,623.00 4,623.00 4,623.00
Reclassification to earnings
Comprehensive loss attributable to
-2,241.00 -2,241.00 -2,241.00
noncontrolling interest
Operating income (after tax) 13,78,115.46 12,71,114.46 12,76,985.46
Financial Income (expense)
Interest expense 1,53,471.00 1,53,471.00 1,53,471.00

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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Interest income 4,097.00 4,097.00 4,097.00

1,49,374.00 1,49,374.00 1,49,374.00

Net interest expense
Tax Effect 31,368.54 31,368.54 31,368.54
Net interest expense after tax 1,18,005.46 1,18,005.46 1,18,005.46
Preferred Dividend — — —
Comprehensive Income to common
12,60,110.00 11,53,109.00 11,58,980.00
stockholders

Working Note:

Particulars 2020 2019 2018

Federal statutory
21.00% 21.00% 21.00%
income tax rate

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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BALANCE SHEET OF THE HERSHEY COMPANY

(in thousands US $, except share data)
December 31, 2020 2019 2018
ASSETS
 
Current assets:
Cash and cash equivalents 11,43,987.00 4,93,262.00 5,87,998.00
Accounts receivable—trade, net 6,15,233.00 5,68,509.00 5,94,145.00
Inventories 9,64,207.00 8,15,251.00 7,84,879.00
Prepaid expenses and other 2,54,478.00 2,40,080.00 2,72,159.00
Total current assets 29,77,905.00 21,17,102.00 22,39,181.00
Property, plant and equipment, net 22,85,255.00 21,53,139.00 21,30,294.00
Goodwill 19,88,215.00 19,85,955.00 18,01,103.00
Other intangibles 12,95,214.00 13,41,166.00 12,78,292.00
Other non-current assets 5,55,887.00 5,12,000.00 2,52,984.00
Deferred income taxes 29,369.00 31,033.00 1,166.00
Total assets 91,31,845.00 8,140,395 77,03,020.00
 
LIABILITIES AND STOCKHOLDERS’
EQUITY
 
Current liabilities:
Accounts payable 5,80,058.00 5,50,828.00 5,02,314.00
Accrued liabilities 7,81,766.00 7,02,372.00 6,79,163.00
Accrued income taxes 17,051.00 19,921.00 33,773.00
Short-term debt 74,041.00 32,282.00 11,97,929.00
Current portion of long-term debt 4,38,829.00 7,03,390.00 5,387.00
Total current liabilities 18,91,745.00 20,08,793.00 24,18,566.00
Long-term debt 40,89,755.00 35,30,813.00 32,54,280.00
Other long-term liabilities 6,83,434.00 6,55,777.00 4,46,048.00
Deferred income taxes 2,29,028.00 2,00,018.00 1,76,860.00
Total liabilities 68,93,962.00 63,95,401.00 62,95,754.00
 
Stockholders’ equity:
The Hershey Company stockholders’ equity
Preferred stock, shares issued: none in 2020
— — —
and 2019
Common stock, shares issued: 160,939,248 in
1,60,939.00 1,60,939.00 2,99,287.00
2020 and 2019
Class B common stock, shares issued:
60,614 60,614 60,614
60,613,777 in 2020 and 2019
Additional paid-in capital 11,91,200.00 1,14,210.00 9,82,205.00

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Retained earnings 19,28,673.00 12,90,461.00 70,32,020.00

Treasury—common stock shares, at cost:
-7,68,992.00 -5,91,036.00 -66,18,625.00
13,325,898 in 2020 and 12,723,592 in 2019
Accumulated other comprehensive loss -3,38,082.00 -3,23,966.00 -3,56,780.00

Total—The Hershey Company stockholders’ 22,34,352.00 17,39,222.00 13,98,721.00

equity
Noncontrolling interest in subsidiary 3,531.00 5,772.00 8,545.00
Total stockholders’ equity 22,37,883.00 17,44,994.00 14,07,266.00
Total liabilities and stockholders’ equity 91,31,845.00 81,40,395.00 77,03,020.00

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REFORMULATED BALANCE SHEET OF

THE HERSHEY COMPANY
PARTICULARS (in thousands US $, except share data)
  2020 2019 2018
OPERATING ASSETS
Cash and cash equivalents 11,439.87 4,932.62 11,439.87
Accounts receivable—trade, net 6,15,233.00 5,68,509.00 5,21,785.00
Inventories 9,64,207.00 8,15,251.00 6,66,295.00
Prepaid expenses and other 2,54,478.00 2,40,080.00 2,25,682.00
Property, plant and equipment, net 22,85,255.00 21,53,139.00 20,21,023.00
Prepaid expenses and other 2,54,478.00 2,40,080.00 2,25,682.00
Goodwill 19,88,215.00 19,85,955.00 19,83,695.00
Other intangibles 12,95,214.00 13,41,166.00 13,87,118.00
Deferred income taxes 29,369.00 31,033.00 32,697.00
Total Operating Assets 76,97,888.87 73,80,145.62 70,75,416.87
 
OPERATING LIABILITIES
Accounts payable 5,80,058.00 5,50,828.00 5,21,598.00
Accrued liabilities 7,81,766.00 7,02,372.00 6,22,978.00
Accrued income taxes 17,051.00 19,921.00 22,791.00
Deferred income taxes 2,29,028.00 2,00,018.00 1,71,008.00
Total Operating Liabilities 16,07,903.00 14,73,139.00 13,38,375.00
 
Net Operation Asset (NOA) 60,89,985.87 59,07,006.62 57,37,041.87
 
FINANCIAL ASSETS
Cash and cash equivalents 11,55,426.87 4,98,194.62 11,55,426.87
Other non-current assets 5,55,887.00 5,12,000.00 4,68,113.00
Total Financial Assets 17,11,313.87 10,10,194.62 16,23,539.87
 
FINANCIAL LIABILITIES
 
Short-term debt 74,041.00 32,282.00 -9,477.00
Current portion of long-term debt 4,38,829.00 7,03,390.00 9,67,951.00
Long-term debt 40,89,755.00 35,30,813.00 29,71,871.00
Other long-term liabilities 6,83,434.00 6,55,777.00 6,28,120.00

Deferred income taxes 2,29,028.00 2,00,018.00 1,71,008.00

Total Financial Liabilities 55,15,087.00 51,22,280.00 47,29,473.00

Net Financial Obligation (NFO) 38,03,773.13 41,12,085.38 31,05,933.13

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CSE 22,86,212.74 17,94,921.24 26,31,108.74

Noncontrolling interest in subsidiary
3,531.00 5,772.00 8,013.00
(Minority Interest)
Common Stockholders' Equity 22,89,743.74 18,00,693.24 26,39,121.74

COMPREHENSIVE INCOME
(in thousands)
For the years ended December 31,
2020 2019 2018
PARTICULARS
Pre-Tax Tax After-Tax Pre- Tax After-Tax Pre- Tax After-Tax

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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Tax Tax
(Expense (Expense (Expense
Amount Amount Amoun Amount Amoun Amount
) Benefit ) Benefit ) Benefit
t t
Net income
including
    1,275,413     1,146,752     1,171,051
noncontrolling
interest
Other
comprehensive
income (loss),
                 
net of tax:
Foreign
currency
                 
translation
adjustments:
Foreign
currency -
13,14
translation -13,767 — -13,767 — 13,141 31,14 — -31,143
1
(losses) gains 3
during period
Reclassificatio
n to earnings 25,13
— — — — — — — 25,131
due to the sale 1
of businesses
Pension and
post-retirement                  
benefit plans:
Net actuarial
-
(loss) gain and
-39,455 9,351 -30,104 -9,315 2,273 -7,042 39,72 10,120 -29,604
prior service
4
cost
Reclassificatio
n of tax effects
— — — — — — — -36,535 -36,535
relating to U.S.
tax reform
Reclassificatio 31,34 40,42
33,326 -8,240 25,086 -8,256 23,085 -9,986 30,435
n to earnings 1 1
Cash flow
                 
hedges:
(Losses) gains
on cash flow
-780 1,880 1,100 -2,515 857 -1,658 5,822 -86 5,736
hedging
derivatives
Reclassificatio
n of tax effects
— — — — — — — -11,121 -11,121
relating to U.S.
tax reform
Reclassificatio
7,779 -3,156 4,623 8,404 -2,949 5,455 5,573 -2,677 2,896
n to earnings
Total other 41,05
-12,897 -165 -13,062 -8,075 32,981 6,080 -50,285 -44,205
comprehensiv 6

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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e (loss)
income, net of
tax
Total
comprehensiv
e income 12,62,35 11,79,73
            11,26,846
including 1 3
noncontrolling
interest
Comprehensive
loss attributable
to     -2,241     -2,773     -7,682
noncontrolling
interest
Comprehensiv
e income
12,64,59 1,182,50
attributable to             11,34,528
2 6$
The Hershey
Company

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DIVIDEND

Dividend = Common Stock Holders Equity Common Stock Holders Equity(opening) = Net
(Opening) + Comprehensive Income - Common Operating Assets - Net Financial Obligations
Stock Holders Equity(closing)

(in thousands US $)
 PARTICULARS 2020 2019

Common Stock Holders Equity(opening) 17,94,921.24 $ 26,31,108.74

Common Stock Holders Equity(closing) 22,86,212.74 $ 17,94,921.24

Comprehensive Income 12,64,592.00 $ 12,64,593.00

DIVIDEND 7,73,300.50 21,00,780.50

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 FINANCIAL STATEMENT ANALYSIS ANALYSIS
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BOTTOM LINE PROFITABILITY (ROCE, AE) AND TARGET PRICE

RETURN ON COMMON EQUITY (ROCE)    
       
  ROCE = Comprehensive Income (ci)    
Average common stockholder's
  equity    
       
     (in thousand US$)
  PARTICULARS 2020 2019
   
  Comprehensive Income (CI) 12,60,110 11,53,109
  Average common stockholder's equity 20,45,218 22,19,907
  ROCE 61.61% 51.94%
       
   
 
 

 ABNORMAL EARNINGS (AE)    

       
 (in thousand US$)
PARTICULARS 2020 2019
  AROCE*CSE(BP) 5,72,086 4,62,943
       
Working Note:
AROCE= ROCE-Re 49.61% 39.94%
     
Where,    
ROCE = 62.47%    
Cost of Equity (Re) (Assumed) = 12%    

   
 
 

 TARGET PRICE AT THE END OF 2021  (in US$)  

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   PARTICULARS    
  Current Share Price 151.3
  Estimated EPS 6.71
  TARGET PRICE 22.55

ROA, RNOA, AOI, and Free Cash Flows (FCF)

RETURN ON ASSETS (ROA)    
       
  ROA = Net Income + Interest Expense  
  Total Assets  

      (in thousands US $)

  PARTICULARS 2020 2019

  Net Income + Interest Expense 12,82,805 11,57,689

  Total assets 94,09,203 83,90,340
  ROA 13.63% 13.80%
       

RETURN ON NET OPERATING ASSETS (RNOA)  

       
       
  RNOA = Operating Income    
  Net Operating Assets    
       
Where,    
       
  Net Operating Assets = Operating Assets - Operating Liabilities

      (in thousands US $)
  PARTICULARS 2020 2019

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  Operating Income (After Tax) 13,93,418 12,59,508

  Net Operating Assets 60,89,986 59,07,007
  RNOA 22.88% 21.32%
       

ABNORMAL (RESIDUAL) OPERATING INCOME (AOI)

       
  AOI = OI-R*NOA    
       
Where,    
  OI = Operating Income After Tax    
  R = Required Rate of Return    
  NOA = Net Operating Assets    
      (in thousand US $)
  PARTICULARS 2020 2019
   
  Operating Income (after tax) 13,93,418 12,59,508
  Net Operating Assets * R 7,30,798 7,08,841
  AOI 6,62,620 5,50,668

FREE CASH FLOW (FCF) = OPERATING INCOME - CHANGE IN NET OPERATING ASSET

(in thousand US $)
  PARTICULARS 2020 2019

Operating Income (after tax) 1393418.46 1259508.46

Change NOA 182979.25 169964.75
FREE CASH FLOW (FCF) 1210439.21 1089543.71

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