Advanced Medical Technology Corporation

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 available capital for R&D.

III. Market Characteristics:

The medical instruments market features latest technology and very high competitiveness.

IV. Growth Analysis:

The arithmetic mean technique forecasts the growth rate for 1986 to be 52.3 % and the sales volume is projected to be $47,501 (in thousands). The geometric mean technique show slightly lower figures respectively 52.89% and $47,161. The excessive growth rate requires lots of funds to be sustained. AFN for the company is approximately $11,883. The company needs to finance externally in long-term debt almost $12 million. Therefore, the requested line of credit of $8 million will not be sufficient enough to sustain the large growth rate of its sales.

V. Profitability:

AMT has had losses for the three years that it has been in business. It has relied heavily on short-term financing to cover those losses. AMT has also overdrawn its account on several occasions. The Gross Margin for 1984 & 1985 has been .55, which indicates that 55 cents of each sales dollar is available to pay for fixed costs and to add to profits. Since, the company has no profits; the 55 cents go for fixed costs only. To break-even the company’s sales needed to be $34,145 in stead of $30,848 in 1986.

VI. Capital Structure:

Looking further the AMT’s levers of performance, we see that the company has no Profit Margin. 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.

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