Boston physician devices Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Boston physician devices Case Study Solution

Introduction:

Boston physicians are the manufacturers of medical equipment, those instruments that are widely used in the treatment and testing of those organs and vessels where the direct access is difficult or nearly impossible. These products are the innovative products that are used as a substitute for long surgical procedures. These products are widely considered nowadays because of lesser risk associated with it. Moreover, the cost of using such equipment are also less with increased reliability. The instrument used requires heavy R and D expenditures to make its usage more reliable and sophisticated in the long run, Boston physicians are performing at a very good potential. The profitability and sales of the company have increased reasonably during previous few years. The company is known for making experimentation to manufacture innovative products in the field of medical science, the state of the art procedures and technical staff is known for bringing solutions and utilizing the R and D expenditures in a positive way.

Problem statement:

The company is involved in the manufacture of scientific medical instruments, that requires research and experimentation in an effective direction, the extensive growth trends and profitable performance of the company requires spending more on the operation of the company, so that, extensive research could be made possible and the competitive edge can be retained. For that Purpose Company wants to extend their line of credit so that their ultimate financing needs can be fulfilled.

Discussion:

The CFO of the company is the view that company shows positive financial trends, and for the company for the next few years, anextensive line of credit is required. The company has planned to manufacture a new plant in the immediate vicinity of their existing plant. The budgeted cost that would be required by the company is $1200000 million in the next following two years, with the total of $2400000 million. The company has planned to get financed and increase their line of credit, as the existing line of credit would not be sufficient enough to finance the needs of the company. During the current scenario, the company has only obtained short term loans and credits that are not sufficient to meet the needs of the company. The current line of credit with the great New England bank has been utilized.

CFO of the company has planned to obtain an extensive line of credit, CFO is sure enough that the company would perform in a better way as the trends show the same, the revenue has increased 50% over the last year, and the predictions are also positive and indicated overall profitability. Furthermore, the financial analysis would clearly explain the scenario that is used by Gruber in the presentation by him that is to obtain the extensive line of credit by the satisfying bank, that the company has sound financial viability and that the company would be able to pay the interest that would be due after obtaining the finance.

The following analysis would be helpful to determine:

Financial analysis:

The revenues have been predicted by the company, CFO is certain that the revenues would increase in the upcoming years, all the other figures are calculated in accordance with the given (historical) revenue figures and the predicted figures. The cost of goods sold, and the other expenditures accordingly. Currently, the company is utilizing short term facility and paying interest expenses on 75, the lowest interest expense on the short-term loan is 6%. The company wants to utilize additional loan facility, but given that, the company might face liquidity issues in the long run. The interest expense would considerably increase if the company opted to utilize long term loan. The performance of the revenue during the last three years was good, but the predicted revenue has declining trend. The performance is not worst but on declining trend. In such circumstances, a huge amount of long-term debt should not be obtained because, in the long run, the company might face a liquidity crunch.

Conclusion/Recommendation:

From the following situation, it is identified that the performance of the company was not up to the benchmark for increasing the credit line. It was also assured by the credit rating agencies that the debt coverage amount was not satisfactory for the company because it had weak internal controls and was not able to maintain the liquidity standards. It also means that the requirements which they were able to meet was not matched with the credit management criteria. Therefore, in order to meet the demand to increase the credit line of the company, CFO should increase the cash flows from operations by selling out some of the fixed assets. Also, he should be able to decrease the expenditures through debt amount at a considerable value. The focus would be to add the minimum set amount of debt with the cash from selling the fixed assets in order to meet the requirements of $12 million. If the particular scenario would be implemented then it can be said that the company would increase the cash flows subjected to reinvest in the projects plus it would able to meet the debt requirement in the future considerations.....................

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