The need for additional financing is a result of multiple factors that placed intense pressure on available cash. The first factor is the extraordinary growth AMT has experienced the last few years with an annual sales growth rate of 52.88%. The extreme growth rate in sales was accompanied with heavy spending on research and development along with rapid expansion in the company’s sales force and other marketing expenditures. What made matters worse is the company has incurred operating losses, which meant that generating cash from operations was at best limited or insufficient.
The second major factor is the inefficient use or mismanagement of some of the …show more content…
AMT has been borrowing heavily in the past, exceeding its $6 million credit line with accounts receivable and inventory pledged as security. AMT’s industry data shows 1-3% in bank loans, where AMT shows 14% of note payable to the bank in 1983, with a huge spike of 34% in 1084 and down to 23.2% in 1985 (Exhibit A). AMT’s borrowed money has been mismanaged and has been heavily spent on fixed costs, which shows 55% of sales account for General and Admin Expenses. Further, there is a very low inventory turnover with nearly 255 days that the product sits in inventory before sold.
However, looking further into details on the ratios (exhibit B), it shows that AMT’s current and quick ratio are relatively in the upper quartile, meaning, AMT has its current liabilities covered 4-5.4 times over. Further, looking at the total debt ratio ((Total assets - total equity))/Total assets), AMT shows 0.38, 0.72 and 0.48 for 1983, 1984, and 1985 respectively. Meaning, AMT has $0.38, $0.72 and $0.48 in debt for every $1 in assets.
Compared to the industry, it is shown that AMT certainly borrows heavily from the bank and is further mismanaged, and hopes to continue borrowing money.
4. How much will AMT