Hampton Machine Tool

2228 Words Apr 29th, 2007 9 Pages
Hampton Machine Tool Company, a machine tool manufacturer, was founded in 1915. Hampton 's customer base is made up primarily of military aircraft manufactures and automobile manufactures in the St. Louis area. Hampton felt the boom in the 1960s with record setting profits in the mid to late 1960s. Hampton slowed down in the 1970s with the withdrawal from Vietnam War and the oil embargo. Hampton stabilized by the late 1970s and now has a larger market share as other competitors were unable to make it through the tough times. It is now September 14, 1979 Hampton has asked for an extension to the end December 1979 on the $1 million loan they took out from the St. Louis National Bank at the end of December 1978. The loan was originally …show more content…
(Exhibit 5) This may only have a nominal effect on their current problem, but is a move they should make nonetheless. I have assumed they have not been doing this since they show no interest revenue on their income statement. This would not solve their short cash flow problems, but it would be a sound practice to implant for the future. A savings account is a safe nonvolatile place to have the money and it is instantly accessible to Hampton.
They should also change their billing policy to help finance the projects. They should bill their customers monthly based on the percentage of completion method currently a general accepted accounting principle. This will help them match the cash flows from the jobs with related expenses and will remove their cost of financing the jobs. This is an assumption that changing away from their current billing process will not result in lost jobs in the future. They will not be able to start this with their current jobs, but rather new ones coming in. If they are able to start these new jobs by October they will be able to bill the consumers at the end of October and expect payments from them by the end of November. The consumers billed at the end of November should get their payments in be December 30th given the current net 30 payment terms which would make it sufficient time for this amount to be available to help repay the loan.
They may want to resell some of the

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