Hampton machine application company dissertation

About The Company

Hampton Machine Instrument was established in 1915 and has been manufacturing machine tools since its foundation. Hampton company’s customer base is made up mainly of aircraft manufacturers and automobile produces in the St . Louis region. It skilled record development and earnings during the years. Sales and profitability dropped in the mid-1970s with the drawback from Vietnam War and the oil retención. However , the business had stabilized the massive of sales by late 1972s. The reasons of Hampton’s restoration were the increasing volume of military plane sales in both foreign trade and household markets, the auto industry rising and an improvement in the economy.

Summary with the Problem

Hampton Machine Application Company have problems with the repayment of the $1million bank loan due date of September 1979. The loan utilized for the stock repurchase. Thanks to the leader of Hampton Company-, Mr. Cowin’s great reputation as well as the credibility available community and submission of projected product sales and forecasted financial claims St .

John National Lender gave the loan to the firm. There were many factors induced the failing of forecast sales which include firstly, the detention of delivery by major component supplier on time, secondly, the purchase of $420, 000 worth of pieces over regular level of inventory, thirdly, complications of equipment occured during the production period. On the other hand, the company plans to pay a dividend of $150, 500 in 1979. Therefore , Hampton needs an additional mortgage of $350, 000 right up until October being paid in December lates 1970s along with the primary loan Analysis

The bank will need to make decision by the end from the October as a result of maturity particular date of the primary loan. To evaluate the borrower’s ability intended for the repayment Pro-forma Financial Statements, Earnings ratios, Fluidity and leverage ratios, and projected money budget needs to be assessed.

Expected Cash Budgets and?ng?rülen Financial Assertions yield unfavorable results regarding the principal repayment of the bank loan for December 1979. Theforecasts of this evaluation are based on projected sales, one month extension in the loan and dividend repayment, and beginning to repay the money early.

Expected Sales

In the event sales projections and accounts receivables are certainly not met, this situation will be more serious than the present one fiscally. But as you observe in the projected cash budget, ending money balance in December can be negative to ensure that Hampton will probably be unable to pay back the loan about that time. Alternatively repayment in January will probably be possible with an increase of accurate organizing.

Liquidity Ratios

The reason with the paradox of increasing current proportion and net working capital yet decreasing quick ratio is the increasing amount of inventories Activity RatiosThe typical age of inventory improved as a result of an increase in stocks. The company includes a stock of row supplies, and there are further inventories looking forward to the production procedure. The receviables management appeared to improve nevertheless collection in July and August needs a concern and a further examine should be performed.

Profitability Ratios

Although there is shaky trend, Hampton Company’s earnings ratios appears as its finest visible towards the company’s enhance on its Net Earnings Margin in history and output.

Dividend Payment

The company repurchased a substantial fraction of their outstanding prevalent stock. Regardless of the good functions about raising the share value, that were there to make a loan of $1,000,000 for he purchase. As a result of unreasonable circumstances to pay dividends in 12 , the company will have a negative cashflow.

Solution

All of us inferred from the financial claims that the firm can not repay the loan in December, or else they will possess negative cash flow. However , each of the financial transactions have regularity among them showingthis declining craze. They should give you a one month extention on the mortgage to indicate an affordable solution and then should start trying to repay it early on.

The repayment process needs to be started

Payment of $200, 500 in Sept. 2010

Payment of $100, 000 in October

No payment in November

Payment of $350, 000 in December

These types of payments decrease the interest and final financial loan payment.

One other solution is around the extention of one month till January with the final repayment of $700, 1000 once Dec accounts receivables are gathered. Hampton will not likely able to help to make a dividend payment in December so holding the dividend payment till January will enable the cash flow positive and allows for Dec sales being realized, therefore usable to maket he January last payment.

Bottom line

Hampton Machine Tool Business is not in a safeguarded financial condition. There are many improvements necessary to survive. For example, in operating capital’s volume and quality, in profitability, in liquidity and for monetary stability they should focus on new improvements. Once again, the dividend payment must be delayed to January.

Recommendation

Since the business problems are typically temporaray as well as the company beyond the analysis of credit, the financial institution may grand both Hampton’s loan refinancing of the $1million loan to be paid in December lates 1970s, end the extra $ 350, 000 that Hampton desires to borrow (payable on January 31, 1980). However , the very much a good idea for St . Louis National Bank to undertake further research and acquire more info such as sector ratios and data, prevailing interest rates, financial statements by prior years etc . to permit a better plus more informed decision.

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