Advanced Medical Technology Corporation Essay

Decent Essays
Advanced Medical Technology Corporation

I. Short History:
AMT has been in business for three years. The company develops, manufactures, and sells scientific medical instruments, utilizing the latest technology. AMT has experienced enormous growth in sales. However, the company's capital has been used up on heavy spending on research and development and rapid expansion of its sales force. Because of that, the company relies heavily on creditors' money.
II. Management Goals:
The President of AMT believes that sales will continue to grow at the same rate. Therefore, his goal is to maintain its current market position and to aggressively enter new markets. In addition, he wants to maintain its competitive position by utilizing the
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Asset turnover has trended downward slightly from 1.46 in 1983 to 1.32 in 1986 due to a decline in inventory turnover (3.99 in 1983 and 3.16 in 1985). In addition, any AMT"s product sits in inventory 255 days before being sold (for 1985). The fixed asset turnover ration has trended upward (from 14.6 in 1983 to 17.1 in 1985) indicating low capital intensity.
The average collection period for the company of 71 days has not improved since 1983.
Furthermore, more than 50% of assets are short term, primarily AR and Inventories, which are quite volatile. Therefore, investment bears close watching.
Debt-to Asset Ratio indicates that 48% of AMT's assets money comes from creditors (1985). In addition, the low current ration implies lack of liquidity (1.78 for 1986). Therefore, the company needs to rely heavily on outside financing to meet maturing obligations since there is no operating income.
In addition, creditors supply 92 cents for every dollar supplied by owners (Debt-to-Equity Ratio in 1985 is .92).
VII. Summary of Problems:
1. Average collection period is 71 days;
2. High fixed costs: 55% of Sales account for General and Administrative Expenses;
3. Low Inventory Trunover: the product sits 255 days on average in inventory before being sold;
VIII. Recommendations:
1. Tighten up collection of receivables so that receivables account for less than 19% of Sales (1985). Pursue more aggressive strategy of collections;
2. Lower Administrative
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