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GuruFocus has detected 7 Warning Signs with The Hershey Co \$HSY.
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The Hershey Co (NYSE:HSY)
Total Inventories
\$746 Mil (As of Dec. 2016)

The Hershey Co's total inventories for the quarter that ended in Dec. 2016 was \$746 Mil. The Hershey Co's average total inventories from the quarter that ended in Sep. 2016 to the quarter that ended in Dec. 2016 was \$795 Mil.

In Ben Grahams calculation of liquidation value, inventory is only considered worth half of its book value. The Hershey Co's liquidation value for the quarter that ended in Dec. 2016 was \$-3,633 Mil.

Inventory can be measured by days sales of inventory (DSI). The Hershey Co's days sales of inventory (DSI) for the three months ended in Dec. 2016 was 36.80.

Days inventory indicates the number of days of goods in sales that a company has in the inventory. The Hershey Co's days inventory for the three months ended in Dec. 2016 was 59.05.

Inventory turnover measures how fast the company turns over its inventory within a year. The Hershey Co's inventory turnover for the quarter that ended in Dec. 2016 was 1.55.

Inventory to revenue ratio determines the ability of a company to manage their inventory levels. It measures the percentage of Inventories the company currently has on hand to support the current amount of Revenue. The Hershey Co's inventory to revenue ratio for the quarter that ended in Dec. 2016 was 0.40.

Definition

Total Inventories includes the raw materials, work-in-process goods and completely finished goods of a company. It is a portion of a companys current assets.

Explanation

Inventory control is an important part of business operation. If a company does not have enough inventory, it may not be able to meet customers required delivery time. If it has too much inventory, the cost of holding the inventory can be high.

1. In Ben Grahams calculation of liquidation value, inventory is only considered worth half of its book value.

The Hershey Co's liquidation value for the quarter that ended in Dec. 2016 is

 Liquidation value (Q: Dec. 2016 ) = Cash and Cash Equivalents - Total Liabilities + (0.75 * Account Receivable) + (0.5 * Inventory) = 296.967 - 4738.477 + 0.75 * 581.381 + 0.5 * 745.678 = -3,633

2. Inventory can be measured by Days Sales of Inventory (DSI).

The Hershey Co's Days Sales of Inventory for the three months ended in Dec. 2016 is

 Days Sales of Inventory (DSI) = Average Inventory (Q: Dec. 2016 ) / Revenue (Q: Dec. 2016 ) * Days in Period = 794.5985 / 1970.244 * 365 / 4 = 36.80

3. Days Inventory indicates the number of days of goods in sales that a company has in the inventory.

The Hershey Co's Days Inventory for the three months ended in Dec. 2016 is calculated as:

 Days Inventory = Average Inventory (Q: Dec. 2016 ) / Cost of Goods Sold (Q: Dec. 2016 ) * Days in Period = 794.5985 / 1227.975 * 365 / 4 = 59.05

4. Inventory Turnover measures how fast the company turns over its inventory within a year.

The Hershey Co's Inventory Turnover for the quarter that ended in Dec. 2016 is calculated as

 Inventory Turnover = Cost of Goods Sold (Q: Dec. 2016 ) / Average Inventory (Q: Dec. 2016 ) = 1227.975 / 794.5985 = 1.55

5. Inventory to Revenue determines the ability of a company to manage their inventory levels. It measures the percentage of Inventories the company currently has on hand to support the current amount of Revenue.

The Hershey Co's Inventory to Revenue for the quarter that ended in Dec. 2016 is calculated as

 Inventory to Revenue = Average Inventory (Q: Dec. 2016 ) / Revenue (Q: Dec. 2016 ) = 794.5985 / 1970.244 = 0.40

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Be Aware

Manufacturers with durable competitive advantages have the advantage that the products they sell do not change, and therefore will never become obsolete. Buffett likes this advantage.

When identifying manufacturers with durable competitive advantage, look for inventory and net earnings that rise correspondingly. This indicates that the company is finding profitable ways to increase sales which called for an increase in inventory.

Manufacturers with inventories that spike up and down are indicative of competitive industries subject to boom and bust.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

The Hershey Co Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Inventory 600 593 520 534 649 633 660 801 751 746

The Hershey Co Quarterly Data

 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Mar17 Inventory 801 746 874 814 751 770 871 844 746 795
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