Hampton Machine Tool Company

HAMPTON MACHINE TOOL COMPANY

Business and Strategy

Hampton Machine Tool Company, established in 1915, is a machine tool manufacturing company mainly catering to customers in the aircraft manufacturing and automobile manufacturing industries located in the St. Louis area. The company applies a 30-days net A/R term and a 30-days net A/P term. In addition, customers who place a larger order sometimes make a payment in advance to make sure that the company has enough cash to construct machines.

Management

During the past twenty years, because of the economic conditions, Hampton experienced highs and lows in production. Thanks to the conservative financial policies, Hampton kept a strong working capital on account. This position helped the company survive and success in this volatile industry while many competitors had been forced out of the business.  

As mentioned in the letter from Mr. Cowins, Hampton was unable to pay back the initial $1 million loan because the actual shipments which was about $3 million lower than projected. There were two main reasons caused this temporary bottlenecks of reduced shipments. One was the heavy backlog of unfilled orders and the other was the disrupted shipment schedule. These reflected the company’s problems in operation and supply chain management. The company currently has about $16,500,500 backlog which is approximately 90% of its annual capacity. This indicated that the company is not able to keep up with demand. If this situation does not improve, the company will disappoint customers in the near future. As for the supply chain problems, the late deliveries of machine parts harmed the shipment schedule and hampered the company’s sales. Hampton should consider how to corporate with suppliers more efficiently.  

Financial Condition

• Income Statement

Based on the income statement provided by Mr. Cowins, the profitability ratios from December 1978 to August 1979 was low and unfavorable to creditors. Though, there is a significant improvement in these ratios from the projected income statement. From December 1978 to August 1979, the average ROA is about 1.5%, which indicated that the company did not well manage its asset to earn a profit. While the ROA increased to 4% from September 1979 to February 1980 by using the projected income statement, it shows that the company is able to manage its assets efficiently over time. The other profitability ratios indicate an upward trend as well. The ROE improved from 5% in March 1979 to 6.3% in February 1980. The operating margin was 16% in March 1979, while the average operating margin from September 1979 to February 1980 is about 33%. These upward trends proved that the company is profitable and worth to extend credit to.