Advanced Medical Technology Solution
Would you, as Mr. Winter, advocate a mortgage to AMT? If so, on what basis? As Mr. Winter, I would advocate a loan to Advanced Medical Technology Corporation (AMT). There are a quantity of explanation why I would suggest a mortgage to AMT. The largest factor is that this company continues to be in the growth / infancy stage of its life cycle. They have invested massive quantities of capital into the research and improvement, and marketing of its merchandise, and it is too soon to see the rewards from these investments.
Some of the adjustments that must be made in order for a loan to be approved for AMT embrace improving manufacturing efficencies, short-term loans, operations, and managing their accounts recieveables. The manufacturing operations of AMT could be streamlined which can allow AMT to see greater earnings. Right now they are constructing in ten to twelve week lot sizes, and they are not always making the merchandise they need. With the funding into a information system, they will streamline this course of.
This was put in in 1984, and they’re making progress. I would suggest reshuffling some positions (i. e. , MRP, planning, master data) in order to obtain the full good factor about the information system. They can construct bigger lot sizes of some merchandise which is ready to minimize down on the direct labor prices for the supplies. Making only the products they know they have demand on will decrease the excess and obsolesnce quantity they’ve to order for every quarter.
AMT can also enhance its accounts receivable days outstanding ratio by having extra management over it’s A/R.
Having somebody do background checks on new customers as a substitute of granting all new clients the same 30 days. Some prospects with poor credit historical past should be given no credit score, and must pay COD or earlier than the merchandise are shipped to minimize risk of default. Well-known customers or customers with great credit score could be given more than 30 days. Also, assortment of past-due accounts should be pursued more aggressively.
Based on the criteria mentioned, and the financial statements, I would give AMT the full $8 million line of credit. The company has had great progress in its revenues. Although this company has not been profitable over the last three years, if it needed to flip a profit, it may do so by eliminating analysis and improvement. Just by promoting present merchandise, it would have had a internet earnings of $3. eight million in 1985 if it did not have the research and development expense. I am not advising the removal of R&D, I am just providing a worst case state of affairs for the corporate.
Ending the R&D division would cause no new products, and new enhancements to existing merchandise in an ever altering evenronment. This company has the potential to turn out to be worthwhile in 1986, and pay down important quantities to its debt by the tip of 1987. And they need to pay down some debt to be able to improve their working capital which was fine in 1983, but because of bills (possibly related to the set up of the information system) in 1984 its working capital has soured.