Hampton Machine Tool Company Essay

About The go withHampton railway car Tool was established in 1915 and has been manufacturing machine tools since its foundation. Hampton alliances customer base is made up originally of aircraft manufacturers and automobile manufactures in the St. Louis bea. It experienced ledger production and advantageousness during the years. gross sales and utilityability declined in the mid-1970s with the withdrawal from Vietnam War and the vegetable oil embargo. However, the ships company had stabilized the massive of gross revenue by the late 1970s. The reasons of Hamptons reco actually were the change magnitude number of military aircraft gross revenue in twain export and house servant markets, the automobile labor rising and an procession in the economy.Summary of The ProblemHampton Machine Tool corporation feed problems with the refund of its $1million givewordword due date of phratry 1979. The loan was used for the stock re bargain for. give thanks to the president o f Hampton Company- , Mr.Cowins good temperament and the credibility in the business connection and submission of projected sales and forecasted fiscal statements St.Louis National vernacular gave the loan to the company. at that place were several factors caused the failure of forecast sales including firstly, the detention of delivery by the major compvirtuosont supplier on time, secondly, the purchase of $420,000 worth of components over normal direct of inventory, thirdly, problems of machines occured during the production period. On the other bowl over, the company plans to pay a divid balancecination of $150,000 in 1979. Therefore, Hampton require an additional loan of $350,000 process October to be paid on declination 1979 along with the initial loan AnalysisThe posit should install decision by the demise of the October due to the maturity date of the initial loan. To assess the bor classers ability for the refund Pro-forma Financial Statements, Profitability r atios, liquid state and leverage ratios, and projected exchange budget should be assessed.Projected Cash Budgets and Proforma Financial Statements contri exactlye negative results close to the principal wages of the loan for December 1979. Theforecasts of this abridgment ar based on projected sales, one month extension of the loan and dividend payment, and commencement to repay the loan early.Projected SalesIf sales projections and accounts receivables atomic number 18 not met, this stead forget be worse than the stupefy one monetaryly. But as we piece of tail see in the projected hard currency budget, ending cash balance in December is negative so that Hampton leave be unable to repay the loan on that time. On the other hand repayment in January will be possible with more accurate planning.Liquidity RatiosThe reason of the paradox of increasing trustworthy ratio and net working large(p) but decreasing quick ratio is the increasing level of inventories Activity Ra tiosThe bonnie age of inventory improved as a result of an increase in inventories. The company has a stock of row materials, and in that respect are additional inventories delay for the production process. The receviables management seemed to improve but collection in July and August of necessity a concern and a tho study should be undertaken.Profitability RatiosAlthough there is unstable trend, Hampton Companys profit ratios seems as its best visible to the companys increase on its earn Profit Margin both in history and projection.Dividend PaymentThe company repurchased a substantial fraction of its outstanding parkland stock. Despite the good purposes about increasing the stock value, they had to make a loan of $1 million for he purchase. Because of the overweening conditions to pay dividends in December, the company will have a negative cash break away.SolutionWe inferred from the financial statements that the company skunk not afford to repay the loan in December, other wise they will have negative cash flow. However, all the financial statements have consistency among them showingthis declining trend. They should erect a one month extention on the loan to indicate a healthy solution and then should start repaying it early.The repayment process should be startedPayment of $200,000 in SeptemberPayment of $100,000 in OctoberNo payment in NovemberPayment of $350,000 in DecemberThese payments reduce the interest and last loan payment.Another solution is about the extention of one month till January with the terminal repayment of $700,000 once December accounts receivables are collected. Hampton will not able to make a dividend payment in December so holding the dividend payment till January will enable the cash flow positive and allows for December sales to be realized, therefore usable to maket he January terminal payment.ConclusionHampton Machine Tool Company is not in a unsex financial condition.There are many improvements needed to survive. For instance, in working capitals quantity and quality, in profitability, in fluidness and for financial stability they should focus on new improvements. Again, the dividend payment should be retard to January.RecommendationSince the companys problems are mostly temporaray and the company past the analysis of credit, the Bank may grand both Hamptons loan refinancing of the $1million loan to be paid on December 1979, end the additional $ 350,000 that Hampton wants to borrow (payable on January 31, 1980). However, its very much advisable for St. Louis National Bank to undertake further studies and collect more data such as industry ratios and data, prevailing interest rates, financial statements from anterior years etc. to permit a better and more informed decision.