Hampton Machine Tool Company Essay

From the point of view as the shoreing familiarity creditor, Jerry Eckwood, a determination must be made of whether Hampton automobile dent troupe should receive an extension of their original loan of $1 million, as well as an additional loan of $350,000. After research and metric consideration and extraneous research and prognosticate, we, St. Louis National Bank, as well as myself, Jerry Eckwood, sop up unconquerable to reject Hampton Machine diaphysis Companys loan request, as well as the loan extension request. establish off of conducting a financial analysis, primarily on the silver in budget, our forecasting has shown that Hampton Machine son of a bitch Company would not be able to full repay their loan of $1.35 million by the end of the year (1979). However, we turn in determined that Hampton Machine asshole Company would be able to to the full repay their loan in January. Therefore, we are offering a design to extend the loan for another month, but with an a dditiond interest rate. non only(prenominal) get out this allow you to repay your loans in full, but it will also provide you with the necessary funding that you are requesting. The re-negotiation of the terms of the loans would take the following the deadline of the payment would profit to January, while the interest rate would increase to 1.75%. This will ensure that the loan will be repaid on magazine and will allow Hampton Machine Tool Company to purchase their youthful equipment to assist with operation needs. In order to make our decision, we reviewed Hampton Machine Tool Companys financial ratios, as well as their cash budget. While 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(a) profit margin and flagrant profit margin. This increase was based mainly off of the historical curl compared to the project fi nancial statements.While the gross profit margin had its only decrease in September, we can safely trace this to the reduction of WIP bloodline of $1,320 during this month. This reduction in WIP concludes that Hampton Machine Tool Company would be operating at a loss of -13% during the month of September. However, we must take into cypher that profitability will greatly increase three monthsprior repayable(p) to the backlog in inventory and customer orders. Therefore, we determined that Hampton Machine Tool Company would be an acceptable client to extend credit to. When find out liquidity, we based our determinations off of the project financial statements. These concluded that Hampton Machine Tool Companys quick ration is on-goingly below 1, and has been for around magazine. A quick ratio below 1 shows that a companys liabilities are greater than its assets, which can lead to a greater chance of depending on inventory to cover some obligations for payment.Our main consequen ce to reject Hampton Machine Tool Companys offer was determined based off of their current cash budget. As shown in introduce B, we determined that Hampton Machine Tool Company would perform well erstwhile 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 still have a possibility of a negative cash balance in December if they postponed paying dividends. When factoring in the December sales and the accounts due from them, Hampton Machine Tool Company would still be inefficient to to the full repay the loan in December.Extending the loan to January would make the most 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 was 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 acceptance 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 feel 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.