Advanced Medical Technology Corporation Harvard Case Solution & Analysis

Whether the loan should be granted to the AMT?

 Business Plan of AMT

The first thing every bank ask the company, borrowing loan, about the future business plan of that company, this is due to the bank wants to know that whether the business plan will help in the favorable survival of the company and whether that business plan will be profitable so that the company can repay its outstanding liabilities, AMT will have to incorporate its future business plans and their outcome in front of the bank to make the loan application successful.

advanced medical technology case solution

advanced medical technology case solution

AMT is keen that the revenue will grow constantly in future as it is growing by 30% a year; this is due to subsequent research and development of AMT and its technical staff which is well regarded as developing new products.

Loan Security

Western national bank like every bank will need security on its loan, currently the AMT is securing loan on its inventory and receivables. The value of the inventory and receivables in total is about $15.758 million in 2013 and $10.141 million in 2012, the national bank will analyze the amount and sufficiency of the security according to its rule but it seems appropriate and sufficient as there is about the double amount of security in 2013 against $8 million of loan.

Future Cash flows of AMT

The Western bank must need the projected future cash flows of AMT company, as the cash flows problem facing company will not be able to pay interest to the lender, as the exhibit#2 shows that AMT is in cash shortage, about $652,000 of negative cash is shown in AMT balance sheet, this is mainly due to ageing receivables and increase in inventory, about $6 million are outstanding to the debtor, which shows the poor receivables collection process od AMT, on the other hand $9.7 million of stock is waiting for sale again shows worst inventory management system which has created unfavorable scenario of the cash flow.

Financial position of the AMT

Finally, the financial position of the AMT will decide whether the bank will lend or not, the financial position of AMT is not in better position which may motivate the bank to reject the loan request, for example, the operating losses has made the AMT in problem to pay the interest, the results in the income statements of AMT shows the operating loss of $1.8 million and the interest expense is $634,000, this may give negative impression to the lenders of AMT as the cash in hand is also negative which may result situation of failure to pay the interest.

Conclusion

The Sunny wale bank has unsatisfactory experience with AMT and has informed about negative balances and losses of AMT to the Western bank. Secondly, the San Francisco believe that the quality of assets are not enough for the lending limits, therefore the Western National Bank should demand extra security over $8 million loan to AMT and get the extra assurance from AMT over the balance limits, interest payments etc. if the Western bank gets appropriate and acceptable assurance from AMT than it should go for the loan approval and otherwise reject the loan application.

2. Value of AMT

The value of AMT can be calculated on the basis of the shares purchased by Biological Lab Inc., We can get the total value of the AMT by the average of the two investments in AMT by Biological Lab Inc., on the basis of this method the value of the AMT is calculated as $116,1538.(The calculation can be seen in the exhibit#1)

3. Importance of valuation of a company

The valuation is important for a company to raise cash because an investor need the criteria for its investment, for example, if there is the appropriate valuation of a company it will help an investor to recognize its stake in the company in the form of a percentage, this means what percentage of shares he hold in the company he invests in.

Secondly, the valuation is used by a bank from whom the company borrows a loan. For bank the assets of a company and their value is crucial for the loan security.

4. Financial strengths and weaknesses of AMT

Strengths

Revenue growth: The sales of AMT had been growing significantly in past two years, the growth was more than double from 2011 to 2013. This may be due to the excellent product development process and the successful marketing by the AMT................

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