Amt Analysis
1. What has created the need for additional finance by AMT since 1983?
The need for additional financing is a result of multiple factors that placed intense pressure on available cash. The first factor is the extraordinary growth AMT has experienced the last few years with an annual sales growth rate of 52.88%. The extreme growth rate in sales was accompanied with heavy spending on research and development along with rapid expansion in the company’s sales force and other marketing expenditures. What made matters worse is the company has incurred operating losses, which meant that generating cash from operations was at best limited or insufficient.
The second major factor is the inefficient use or mismanagement of some of the current assets accounts, namely Accounts Receivable and Inventories. When it comes to Accounts Receivable, it can be seen that in 1985, which is the most recent full year of operation, the company’s Days Sales Outstanding is 70.9 days versus the industry’s average of 55.1 days. This indicates that customers are taking much longer to pay AMT.
AMT ranks among the worst companies in this category (bottom quartile). Regarding inventories, the picture is even grimmer. In 1985, AMT’s inventories as a percent of its total assets were 46.3% (or 9,762÷21,077). This is twice the industry’s average of 23.0%. Perhaps one number explains this mismanagement. The Cash Cycle has been deteriorating the last three years from 181 in 1983 to 277 days in 1985. This means it is taking AMT 277 days between paying its vendors and collecting from customers. It is evident AMT has tied significant amount of cash in both accounts receivable and inventories, which in turn is creating a need for external financing. The two-year growth rate for accounts receivable is 53.37%, AMT is selling a lot on credit to its vendors and they are acting like a bank when they need more capital, which is why they are so tight on cash.
2. Is AMT profitable? How
The need for additional financing is a result of multiple factors that placed intense pressure on available cash. The first factor is the extraordinary growth AMT has experienced the last few years with an annual sales growth rate of 52.88%. The extreme growth rate in sales was accompanied with heavy spending on research and development along with rapid expansion in the company’s sales force and other marketing expenditures. What made matters worse is the company has incurred operating losses, which meant that generating cash from operations was at best limited or insufficient.
The second major factor is the inefficient use or mismanagement of some of the current assets accounts, namely Accounts Receivable and Inventories. When it comes to Accounts Receivable, it can be seen that in 1985, which is the most recent full year of operation, the company’s Days Sales Outstanding is 70.9 days versus the industry’s average of 55.1 days. This indicates that customers are taking much longer to pay AMT.
AMT ranks among the worst companies in this category (bottom quartile). Regarding inventories, the picture is even grimmer. In 1985, AMT’s inventories as a percent of its total assets were 46.3% (or 9,762÷21,077). This is twice the industry’s average of 23.0%. Perhaps one number explains this mismanagement. The Cash Cycle has been deteriorating the last three years from 181 in 1983 to 277 days in 1985. This means it is taking AMT 277 days between paying its vendors and collecting from customers. It is evident AMT has tied significant amount of cash in both accounts receivable and inventories, which in turn is creating a need for external financing. The two-year growth rate for accounts receivable is 53.37%, AMT is selling a lot on credit to its vendors and they are acting like a bank when they need more capital, which is why they are so tight on cash.
2. Is AMT profitable? How