Advanced Medical Technologies Case Harvard Case Solution & Analysis

Advanced Medical Technologies Case Case Study Solution

Hidden Problem

The hidden problems of AMT could be observed through its financial position. The company has highly leveraged as its debt ratio has increased over the years. Moreover the return on investment has declined indicating the problem in the sustainability of the company. Moreover the current ratio of the company has been declining over the year, indicating that the company is facing issues in making payment to its creditors as shown below in the table. Apart for financial position, the company has invested an excessive amount of capital in marketing and Research and development that increases the fixed cost for the company.

Areas of improvement

• The company should cut its marketing and research and development expenditure. Moreover, the company must focus on its investment decision and prioritize the most important activity for the business.
• The company should improve the collection of its receivables. Moreover, the company should introduce strict credit policy for its customers or the company could introduce discounts for its customers for timely payment of debt.

Relations with supplier, bank and customers

Mr. Has kin has maintained good relations with its customers, as the company has smooth credit policy so it has maintained a good relationship with customers. However, the company hasn’t been able to maintain good relations with suppliers as the company has a large amount of dues. As far as banks are concerned, the company is able to maintain good relations with them. Both the banks admire the efforts of Mr. Has kin but feel reluctant to provide loan to the company, because of its leverage condition. Moreover, The Company has maintained a very low balance with these banks, so the banks are unwilling to provide loan to the company.

Value AMT

The AMT is valued through going concern assets based approach in which the net balance sheet value of the liabilities of company are deducted from the net balance sheet value of its assets for the projected years. Hence, it is analyzed that the value of the company is equal to the value of the total asset of company, minus value of the total liabilities of company. In projected year 2014, the liquidation value of the company is negative, whereas in 2015 and 2016, the value of company is positive, which means that the company would be profitable in the forthcoming years.

The calculation is as follows;

Need for additional financing by AMT since 2011

There are various reasons due to which the company needs additional financing such as; the company has been experiencing exceptional growth and leveraging in terms of increased profit margin and maximized market share. Since, the sales volume has been growing on consistent basis, the company is always in need of  additional funding. Also, the company has contemplated to enter into the new market aggressively, due to which it requires additional financing i.e. short term credit.

Additional fund to borrow by 2016

To evaluate the additional loan for the company by 2016. The following assumptions are made:

• Sales, COGS, will grow at 30%.
• The marketing expense will grow at 35% in 2014 and 30% in 2015 to 2016.
• The research and development expense will grow at 40% in 2014 and 30%in 2015 to 2016.

By using the above given assumption, the company needs to borrow $8586140 by 2016, as shown in the given table.

Recommendation

It is imperative to note that the company should have more control over account receivable to improve its account receivable days’outstanding ratio. The company should not grant same 30 days to all new customers. It should not give credit to the customers with the poor credit history, and the COD must be paid or before the shipment of products, in order to reduce the default risk.

The company should grant more than 30 days to the customer with good credit history. Also, the company needs to pursue the collection of the past due accounts in an aggressive manner. On the basis of the financial statement, it is suggested that the company should be given full 8 million dollars line of credit. Even though,the company has not been profitable over the period of 3 years, it should eliminate the cost of research and development to be profitable. One of the reason is that the company is in an infancy or at the growth stage of its life cycle. It has hugely invested in the research & development (R&D) and product marketing.It is early to seek the rewards from the investments. The company should consider some measurements to be taken for loan to be approved, such as; improving operations, short term loans, manufacturing efficiencies and managing account receivables in an effective way.........

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