Advanced Medical Technology Case Study Solution
Question - Would you, as Mr. Winter, recommend a loan to AMT?  If
so, on what basis?

As Mr. Winter, I would recommend a loan to Advanced Medical
Technology Corporation (AMT).  There are several reasons why I
would recommend a loan to AMT.  The biggest factor is this company
is still in the growth / infancy stage of its life cycle.  They have invested
large amounts of capital into the research and development, and
marketing of its products, and it is too soon to see the rewards from
these investments.  Some of the changes that need to be made in
order for a loan to be approved for AMT include improving
manufacturing efficencies, short-term loans, operations, and
managing their accounts recieveables.  

The manufacturing operations of AMT can be streamlined which will
enable AMT to see greater profits.  Right now they are building in ten
to twelve week lot sizes, and they are not always making the products
they need.  With the investment into a information system, they can
streamline this process.  This was installed in 1984, and they are
making progress.  I would recommend reshuffling some positions
(i.e., MRP, planning, master data) in order to obtain the full benefit of
the information system.  They can build larger lot sizes of some
products which will cut down on the direct labor costs for the
materials.  Making only the products they know they have demand on
will minimize the excess and obsolesnce amount they have to reserve
for each quarter.
AMT can also improve its accounts receivable days outstanding ratio by having more control over it’s A/R.  Having someone do
background checks on new customers instead of granting all new customers the same 30 days.  Some customers with poor credit
history should be given no credit, and must pay COD or before the products are shipped to minimize risk of default.  Well-known
customers or customers with great credit can be given more than 30 days.  Also, collection of past-due accounts should be pursued
more aggressively.  

Based on the criteria mentioned, and the financial statements, I would give AMT the full $8 million line of credit.  The company has had
great growth in its revenues.  Although this company has not been profitable over the last three years, if it had to turn a profit, it could do
so by eliminating research and development.  Just by selling existing products, it would have had a net income of $3.8 million in 1985 if
it did not have the research and development expense.  I am not advising the removal of R&D, I am just providing a worst case scenario
for the company.  Ending the R&D department would cause no new products, and new improvements to existing products in an ever
changing evenronment.  This company has the potential to become profitable in 1986, and pay down significant amounts to its debt by
the end of 1987.  And they need to pay down some debt in order to improve their working capital which was fine in 1983, but because of
expenses (possibly related to the installation of the information system) in 1984 its working capital has soured.