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Advanced Technologies Inc Case Solution

Solution Id Length Case Author Case Publisher
1753 812 Words (4 Pages) Thomas R. Piper Harvard Business School : 299042
This solution includes: A Word File A Word File

Michael's plan is reasonably sound as the sales growth is consistent with the expected industry's growth rate. Furthermore, the projections are based on the historical performance of the company; this will give a true snapshot of the company's performance. The plan is to reduce debt, gradually reaching 37% of the total capital by 2002. Michael planned to do so by converting the $30 million subordinated debenture issued in 1994 into equity during 2000. 

Following questions are answered in this case study solution

  1. How well did ATI perform during 1993-1997?

  2. Biggest challenges facing as of October 1997

  3. Huge growth in bank loans despite profitability

  4. Implications of 20% per year sales growth for ATI’s future financing requirements

  5. Should a company with ATI's characteristics finance itself?

  6. How sound is Micheals plan?

  7. What should Mr. Alexander do?

Case Analysis for Advanced Technologies Inc

1. How well did ATI perform during 1993-1997?

ATI’s performance improved significantly during the period 1993-1997 as its sales of semi-conductors increased from 25% per year previously to 52% per year.  Another essential point to note is that even the industry grew during the time frame as compared to the past years, from 12% to 17%. ATI participated fully in the strong recovery of semi-conductor equipment, which led to the sales to increase by 63% against the average growth rate of 52%. Furthermore, profit margins for ATI also improved drastically due to sales exceeding the forecast for every year. The profit margins, therefore, rose from 3% in 1993 to 10.7% in 1996. Furthermore, the share price also increased from $.75 in 1993 to $43 in 1996 which showed good progress.

2. Biggest challenges facing as of October 1997

The biggest challenge facing the company was weak industry conditions, which led to falling sales and lower margins. During late 1996, the demand o memory chips declined. The mismatch between the demand and supply caused the current prices to fall drastically. Increased production capacity and lower sales led to piling up of inventory and lower costs. As a result of this, the equipment providers also suffered as they had to deal with order cancellations, capital spending cutback and requests by customers for longer credit terms. This directly impacted on the profitability as well as the liquidity of the business.

3. Huge growth in bank loans despite profitability

There was considerable growth in ATI's bank loans despite profitability because due to weak industry conditions, it made most of its sales on credit. This is the reason why the accounts receivable balance on the balance sheet rose from $30.2 million in 1993 to $129.6 million in 1996, which means that it almost quadrupled. To meet the working capital needs, the company had to take loans as a result of which the bank loans continued rising. Furthermore, the accounts receivable balance drastically increased from $129.6 million to $180.7 million, which further upset the financial position of ATI in terms of liquidity and debt despite it being profitable.

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