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Case Ham Company

In: Business and Management

Submitted By outsider
Words 438
Pages 2
Case: Hampton Machine Tool Company
Assignment Questions
Why can’t a profitable firm like Hampton repay its loan on time and why does it need more bank financing? What major developments between November 1978 and August 1979 contributed to this situation?
The main reason why the company cannot repay its loan is because the company bought back 75,000 of shares at a cost of $3m. ($1m from the loan, $2m of cash)
The company have also poorly forecasted sales from January to August ($11.9) with actual sales amounting to $8.7m. The company wants to borrow more money because it wants to buy new machinery at a cost of $350k and this is due to no machinery being replaced because of the economic downturn.
The company purchased $420k worth of raw materials, which it will use by the end of the year.
There was a substantial backlog of orders amounting to $16.5m on 31st August.
There was a missing piece of electronic equipment to finish some machines valued at $1,320,000, which was due to arrive and then the orders can be finished.
The company needs to stay cash positive on a daily basis in order to finance its operations and business expansion.
Based on the information in the case, prepare a projected cash budget for the four months September through December 1979, a projected income statement for the same period, and a pro forma balance sheet as of December 31, 1979.
See attached excel spreadsheet below.
Review the results of your forecast. Do the cash budgets and pro forma financial statements yield the same results? Why?
Since we are using the indirect method to calculate the cash flow statement, we can only compare the operating cash flow on the cash flow statement to the net income on the P&L. The differences in the numbers are substantial due to the realisation of recognised revenue and expenses, which usually flow in the next month based on the given terms (30

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