Study Case: Hampton Machine Tool

Background. Hampton Machine Tool Company, a machine tool manufacturer, was founded in 1915. Hampton's customers are military aircraft and automobile manufacturers in the St. Louis area. Machine Tool Company felt the boom in the 1960`s with record setting profits in the mid- to late- 1960`s. The company slowed down in the 1970`s economic recession caused by Vietnam War and the oil embargo. Hampton stabilized by the late 1970`s and now has a “strong working capital position”. The company also didn`t have a debt during 10 years until December 1978. 1. Why can`t a profitable company like Hampton repay its Bank Loan on time and why does it need more bank financing? …show more content…
Income Statement | | | | | Sales | $7,537.00 | Cost of Sales | $5,740.00 | Other expenses | $117.00 | EBIT | $1,680.00 | Taxes | $771.40 | Earnings after taxes | $908.60 | Dividends | $150.00 | Retained Earnings | $758.60 |
Table 2

* Cost of Sales= $1320 (reduction in work in progress)+ $420 (reduction in raw material inventory) + $2400 (purchases)+ (400*4) (other outlays). * Other expenses = $47 (Depreciation) + $70 (Interest) * Taxes = (1680*48%) - $35 (Investment tax credit)

Balance Sheet. Balance Sheet December 31,1979 | | | | | | | | | | Cash | -$331.50 | | Inventories | $3,024.00 | | A/R | $2,265.00 | | Total current asset | $4,957.50 | | Gross Fixed Assets | $4,360.00 | | Accumulated Depr. | $3,137.00 | | Net Fixed Asset | $1,223.00 | | Prepaid expenses | $42.00 | | Total Assets | $6,222.50 | | | | | Accounts Payable | $600.00 | | Accruals | $552.00 | | Taxes Payable | $888.00 | | Total Current Liab. | $2,040.00 | | Net worth | $4,182.60 | | Total Liabilities and net worth | $6,222.60 | |
Table 3

* A/R is December`s sales * Inventories = $4764 (Invent. Aug.) – $1320 (reduction I n work in progress) – $420 (reduction in raw material invent.) * Gross Fixed Assets = $4010+$350(capital spending). * Accumulated Depreciation = $3090 + $47 (Depreciation). * Total Assets = Current Assets+ Net