Hampton Machining Case Analysis

Hampton Machining Case Analysis.

* Hampton has only recouped 73% of their forecasted selling price; $8699K (actual)/ $11919K (forecast). This might be connected to the declining value of the New Zealand dollar as well as the “advance” payment of the customer in relation to the invoicing price they receive upon receipt of the machinery plus the Net 30. The forecast (modified) for September – December are very extreme for the month of September with a steady cap over the last three months.

* It’s important for the bank get a better understanding on how they can effectively payback the existing loan, as they stated they can, but it’s crucial to look at the current ratio and see if that they enough cash to cover their liabilities.

They have a stable current ratio of between 1.5 and 1.6 to every $1 of liability. The spike in coverage has to do with the excessive inventory that Hampton took on that they have stated will be utilized.

Hampton will generate about on average 12-13% on every dollar in sales, this seems like an easy net profit margin to live with. But with the current situation (i.e.- value of their dollar decreasing as well as specific production constraints, would Hampton be able to stay flat or increase in their profit guidelines.

There is a slight dip in the return on assets as the measure of profit per dollar of assets. This demonstrates how profitable the company is before leverage.

Looking at the current standing of Hampton, one would assume that they are a stable company with slight functions in terms of financial value. As a banker with the opportunity to provide an additional loan, Eckwood should loan the company the money.