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Hampton Machine Tool Company- A Case Study

Background of the case

1915- hampton machine tool established 1960s- profitable due to Vietnam war Mid 1970s- decline in sale and profitability 1978- sales started to rise

About the case Survival due to conservative financial policies and success in capital goods industry, thus no debt balance. Dec 1978- initial loan of 1 million to facilitate repurchase of the stocks (75000stocks@$10) interest rate- 3/2% per month due date- September 1979

Extention of loan to december 1979 Additional loan of $0.35 million to finance equipments purchase Payback by 31st december1979, @3/2% interest p.m. 30 days collection period 30 days pay back peiod.

Problem statement
Will the company be able to repay its loan???

Working capital ratioCurrent assets/current liabilitiesMonth of august7007/4545= 1.541 Ideal ratio- 2:1, thus unfavorable