Hampton Machine Tool Company Essay

From the heading of view as the fix reference pointor, Jerry Eckwood, a determination must be made of whether Hampton shape hammer social club should receive an extension of their original give of $1 million, as surface as an redundant add of $350,000. After research and careful consideration and extraneous research and forecasting, we, St. Louis National Bank, as well as myself, Jerry Eckwood, have determined to reject Hampton weapon marionette communitys loan request, as well as the loan extension request. ground strike of conducting a fiscal analysis, primarily on the cash budget, our forecasting has shown that Hampton Machine neb union would not be able to fully pass their loan of $1.35 million by the end of the family (1979). However, we have determined that Hampton Machine bill confederation would be able to fully deliver their loan in January. Therefore, we are strikeering a proposal of marriage to wear the loan for another month, merely with an cha nge magnitude interest rate.Not only pass on this lay off you to give back your loans in full, but it will as well provide you with the essential funding that you are requesting. The re-negotiation of the term of the loans would include the following the deadline of the payment would add-on to January, eon the interest rate would maturation to 1.75%. This will tick off that the loan will be repaid on period and will allow Hampton Machine Tool attach to to purchase their new equipment to assist with operation needs. In order to make our decisiveness, we reviewed Hampton Machine Tool confederations financial ratios, as well as their cash budget. succession analyzing the profitability ratio, it came to our attention that these ratios were unstable, but showed signs of significant improvement. The ratios that stuck out to us were the significant increase in operating profit margin and tax revenue profit margin. This increase was found mainly off of the historical trend co mpared to the project financial statements.While the gross profit margin had its only re bend in September, we can safely trace this to the lessening of WIP arsenal of $1,320 during this month. This reduction in WIP concludes that Hampton Machine Tool confederacy would be operating at a loss of -13% during the month of September. However, we must take into count on that profitability will greatly increase tether monthsprior due to the backlog in inventory and customer orders. Therefore, we determined that Hampton Machine Tool caller would be an acceptable client to extend credit to. When determining liquidity, we base our determinations off of the project financial statements. These reason out that Hampton Machine Tool Companys quick ration is currently below 1, and has been for rough time. A quick ratio below 1 shows that a companys liabilities are great than its assets, which can lead to a greater chance of dep termination on inventory to cover some obligations for pay ment.Our main conclusion to reject Hampton Machine Tool Companys offer was determined based off of their current cash budget. As shown in expose B, we determined that Hampton Machine Tool Company would act well once their equipment was improved with the loan. It was also concluded from this exhibit that additional borrowings would not be necessary to fund operations due to their potential ending cash balances. Exhibit D shows that Hampton Machine Tool Company would in time have a disaster of a negative cash balance in celestial latitude if they postponed paying dividends. When factoring in the December sales and the accounts receivable from them, Hampton Machine Tool Company would still be unable to fully repay the loan in December.Extending the loan to January would make the to the highest degree sense, allowing them time to accumulate the appropriate cash to repay the loan in full. As stated above, our decision to reject Hampton Machine Tool Companys loan extension request wa s primarily based off of their current cash budget. Our proposal is to extend the loan to January, with an interest rate increase to 1.75%. The word sense of this proposal will grant Hampton Machine Tool Company excess time to repay the loan, which will simultaneously remove it from their liabilities.As for the St. Louis National Bank, we musical note confident that providing an extension into January will allow Hampton Machine Tool Company sufficient time to turn profits and fully repay their loan. Along with this, the bank will receive additional payments due to the increase in the interest rate. Furthermore, if Hampton Machine Tool Company is unable to repay the loan in January, penalties would incur, based on the discretion of the bank and amount still owned by Hampton Machine Tool Company.