Advanced Medical Technology Corporation Persuasive Essay Example

low risk for running into problems with creditors. However, this means that AMT is very dependent on Equity which also has its risks.

Even though Debt to Assets is somewhat positive news for creditors, AMT's Times Interest Earned ratio will make creditors very nervous about their creditworthiness. If EBIT continues to get deeper in the "Red", AMT will have a more difficult time paying back creditors.Difference in two liquidity ratios (Current Ratio and Acid Test) indicates that good portion of the firms assets are ties in inventory reducing its liquidity significantly if we take a conservative approach. Gradually increasing, the asset turnover figures indicate that AMT's efficiency to generate revenues from its assets is improving.For several reasons, we would not extend the loan to AMT.

First, while the company is not highly leveraged, the company is not generating profits so the debt only increases year by year. In essence, they are borrowing to finance more borrowing. Second, the cash conversion cycle is increasing. As shown in Exhibit 3, once the materials for a product have been paid for by AMT, by 1986, it takes them 303 days to receive payment for that item. The number of days it takes to collect increases over time.Also, the times interest earned ratio is negative.

Projections indicate that not only is it negative, it will continue to sink further into the red. While the company does not currently have trouble meeting required payments, if this trend continues, it will soon.The comments from the other two San Francisco are not favorable to AMT. Bank of San Francisco indicated that while it enjoyed dealing with Haskins, his requests were never ending and they did

not believe the quality of his assets substantiated increasing the line. Sunnyvale's loan officer, Mr.

Flint, had similar comments. He said that AMT kept low balances in its account and often did not keep acceptable collateral for the account.AlternativesThe company has a number of alternatives to taking out a loan to finance its growth. First, it could sell new equity. However, with the ROE that it currently has, it may have a difficult time attractive buyers at a reasonable price.

AMT could also consider changing its pricing structure. This may be a reasonable alternative since AMT is a pioneer in its markets and may be able to set initial prices.A third alternative would have to do with cost savings. AMT could save significantly by reducing the amount of inventory kept on hand.

Currently, the company keeps 10 to 12 weeks of inventory. AMT is currently pursuing savings through collection improvement. As slow pays are common in the industry, this may prove difficult. Currently, AMT extends 30 day credit to everyone without underwriting. More stringent credit guidelines may aide the collection process as well.A final option for AMT would be to merge with Biological Labs.

As the case states, the banks have a positive relationship with Biological Labs. This may give AMT the ability to finance its growth through credit. Also, based on the information provided, it seems to have a ready source of cash to invest in AMT.RecommendationsAs indicated above, we would not extend the loan to AMT.

Given that, the most attractive option for AMT would be to merge will Biological Labs. Since it has bought the requisite amount of stock to be eligible for the merger in 1990,

this seems to be a viable alternative for AMT. In addition, Haskins should continue with his efforts to tighten up collections. Increasing efficiency on this front should assist in providing some needed cash.Finally, the actual growth of the company is exceeding the sustainable growth rate by a substantial margin (Exhibit 4).

They are achieving this by relying very heavily on financial leverage and a gradual increase in the asset turnover ratio. Also, the operational performance is getting worse each year. Because of this the company should change its focus from growth to earnings and liquidity. Such was the case with Dell Computer Corporation1 as discussed in the text.