Would you, as Mr. Winter, recommend a loan to AMT? If so, on what basis? As Mr. Winter, I would recommend a loan to Advanced Medical Technology Corporation (AMT). There are several reasons why I would recommend a loan to AMT. The biggest factor is this company is still in the growth / infancy stage of its life cycle. They have invested large amounts of capital into the research and development, and marketing of its products, and it is too soon to see the rewards from these investments.
Some of the changes that need to be made in order for a loan to be approved for AMT include improving manufacturing efficencies, short-term loans, operations, and managing their accounts recieveables. The manufacturing operations of AMT can be streamlined which will enable AMT to see greater profits. Right now they are building in ten to twelve week lot sizes, and they are not always making the products they need. With the investment into a information system, they can streamline this process.
This was installed in 1984, and they are making progress. I would recommend reshuffling some positions (i. e. , MRP, planning, master data) in order to obtain the full benefit of the information system. They can build larger lot sizes of some products which will cut down on the direct labor costs for the materials. Making only the products they know they have demand on will minimize the excess and obsolesnce amount they have to reserve for each quarter.
AMT can also improve its accounts receivable days outstanding ratio by having more control over it’s A/R. Having someone do background checks on new customers instead of granting all new customers the same 30 days. Some customers with poor credit history should be given no credit, and must pay COD or before the products are shipped to minimize risk of default. Well-known customers or customers with great credit can be given more than 30 days. Also, collection 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 growth in its revenues. Although this company has not been profitable over the last three years, if it had to turn a profit, it could do so by eliminating research and development. Just by selling existing products, it would have had a net income of $3. 8 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 scenario for the company.
Ending the R&D department would cause no new products, and new improvements to existing products in an ever changing evenronment. This company has the potential to become profitable in 1986, and pay down significant amounts to its debt by the end of 1987. And they need to pay down some debt in order to improve their working capital which was fine in 1983, but because of expenses (possibly related to the installation of the information system) in 1984 its working capital has soured.