Amt Finance

. What has created the need for additional finance by AMT since 1983?

AMT’s financials shows an intricate business strategy being executed and somewhat hidden within the numbers.  In a 3 year span (from 1983 to 1985), AMT is showing a negative operating expense in each year.  While the case study mentions that AMT plans on aggressively increasing spending in Research and Development (R&D), the growth percentage from R&D to net sales in their financials is showing that even though costs are rising, it’s not impacting the operating earnings as expected (See Exhibit 2). The rising costs of R&D typically means more administration and management is needed to keep pace with the eventual R&D output.  AMT’s operating expense is being impacted due to increase plan of sales, thus increasing SG&A. Based on the highest 2 year growth rate provided in the Financial Statements, Exhibit 2 also shows the financial statement from 1983 to 1985. The highest SG&A accounted for is 52% growth, so we can assume that this is a minimum (if we’re being conservative) growth in SG&A costs per year for our model. In this three year period, even though AMT’s gross profit is increasing, the company has yet to break even regarding their operating earnings.  So without extra equity or borrowing, the company still does not have enough to cover its basic operations.

The case also mentioned that AMT has a net 30 accounts receivable (A/R) policy. A long collection time is normal and good; however, AMT is extending too much capital, without a credit check. The DARs trends are increasing from the current 70 days (Exhibit 3). There is no mention in the case that indicates a change in their policies. Noticeably absent is a positive cash flow. In AMT’s financials (Exhibit 4), we see that the company has been taking on a negative cash percentage in the initial 3 year period. We also modeled a cash/sales ratio that allowed us to estimate a true trend for AMT’s need for financing (Exhibit 4). With current...