Advanced Medical Technology

Introduction

Advanced Medical Technology Campus has been in business for three years and it develops, produces and sells scientific medical instruments. AMT has experienced a huge growth in sales (30%) but due to the increased heavy spending on research and development and expansion of its sales force, AMT is relying heavily on creditors’ money. AMT’s strategy is through three methods; market expansion through rapid sales growth, heavy spending on research and development and heavy reliance on short-term credit by leasing some manufacturing facilities and establishing a connection with Biological Labs, Inc.

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.

ATM: Additional Financing Welcome

Even with extraordinary sales growth of 30% annually, AMT has been experiencing major operating losses due to heavy SG&A spending and external funds are necessary to be able to continue with this rapid expansion. As we have seen in the introduction, the president of AMT believes that sales will continue to grow at the same rate at 30% annually for the next 5 years.

On the other side, AMT is in serious need of outside financing since the cost of goods sold is growing at that same period for 45% and selling, general & administrative expenses is growing at 40%. In addition, ATM is doing poor job managing the accounts receivable account since accounts receivable has also continued growing at 96.75% over the last 2 years, and thus, the cash cycle time has also increased. This need for additional financing can also be seen through the income statements; the heavy investment in research and development causes an operating loss, therefore a negative net income. To finance the level of research and development, ATM needs external financing....