Large companies are those with 500 or more employees; midsized companies employ between and 50 and 500 people. Small companies are those with fewer than 50 employees. In March 2011, large companies in the United States hired 17,000 new employees. By comparison, midsized businesses hired 82,000 workers and small companies hired 102,000 workers.
These figures are consistent with studies that have shown that it is smaller-sized businesses rather than Fortune 500 ones that are the major source of new jobs during an economic recovery. Only about 1 percent of America?s businesses?300,000 out of 30 million total firms?export. And, nearly two-thirds of those companies export to just one country. For many of these firms, exporting represents a major untapped market opportunity. Recent trends have been encour- aging: In the 15-year period between 1992 and 2007, U.S. small busi- ness exports quadrupled to $400 billion. Even so, the U.S. Small Business Administration (SBA) estimates that there are tens of thousands of small companies that could export but do not. As SBA Administrator Steve Preston notes, ?Exports are the under-recognized opportunity for many American small businesses.?
A number of explanations have been offered for the low level of U.S. exports relative to other countries. In a recent interview, Fred B. Hochman, president of the U.S. Export-Import Bank, explained:
For many years, there was no reason to export because our market was large enough, and it?s easier. But, the world is changing. With 95 percent of the world?s customers living outside the United States, it doesn?t make sense for any business to limit itself to only talking to 5 percent of the world?s population.
Why do so many business owners consider marketing to home- country customers to be easier than exporting? Luz Hopewell, director of the Office of International Trade at the SBA, points out that export documentation is one key issue. She notes, ?You have to understand all the nuances of exporting to other countries. Sometimes if a firm doesn?t get the right license or doesn?t have the right paperwork, the product can be returned from the shipping docks.?
Other reasons have also been offered. One is the limited ambition exhibited by many American business owners; this may result in complacency and a lack of export consciousness. A second barrier is lack of knowledge of market opportunities abroad or misperceptions about those markets. The perceived lack of necessary resources? managerial skill, time, financing, and production capacity?is a third barrier that prevents companies from pursuing export opportunities. Unrealistic fears are a fourth barrier. When weighing export expansion opportunities, managers may express concerns about operating difficulties, environmental differences, and credit risks. Rounding out the list is management inertia?the simple inability of company personnel to overcome export myopia.
Despite these barriers, the current business environment is prompting many small business owners to look into exporting. For example, a weak U.S. dollar translates into more affordable prices in export markets. The trend toward free and open trade is another driving force. According to the SBA, Colombia, South Korea, and Panama account for about $16 billion in annual exports for small businesses. The recent ratification of free trade agreements (FTAs) with these three countries is expected to give exports a boost. Steve Preston, an administrator with the SBA, sums up the advantages of
free trade agreements this way: ?Tariffs come down dramatically, rules become simpler, and (intellectual property) protections become greater. That opens the door for small businesses.?
One company that stands to benefit from ratification of the U.S.-South Korea FTA is Blue Diamond, the California-based coopera- tive that exports almonds. South Korea?s almond market is currently worth $25 million each year, despite a 45 percent tariff on processed almonds and a 21 percent tariff on shelled almonds. Blue Diamond projects that its exports to South Korea will triple within 5 years of the FTA being implemented. One competitive threat to Blue Diamond comes from Australian almond producers who do not face trade barriers with South Korea.
The changing face of entrepreneurship in America is also contributing to the small business export trend. Researchers at Duke University and the University of California at Berkeley studied technology and engineering startups that were founded between 1995 and 2005. The researchers found that 25 percent of these firms had at least one founder who was not a U.S. national. Entrepreneurs with cultural ties to Asia, Latin America, Europe, and the Middle East are seizing the opportunity to market to customers in their respective homelands. Of course, the Internet is another factor driving interna- tional sales. These factors help explain the success of companies such as online cosmetics retailer www.beautyencounter.com. The company was started by Jacquelyn Tran, the daughter of Vietnamese immi- grants. In less than 10 years, annual sales increased from $150,000 to $20 million; today, many orders originate in Europe, Latin America, and Japan.
Meanwhile, three key agencies?the U.S. Commerce Department, the SBA, and the Export-Import Bank?are committing significant resources to the export initiative. Small businesses can now get loan guarantees of $5 million from the SBA; previously, the loan ceiling was $2 million. The Export-Import Bank increased its loan budget 20 per- cent for fiscal 2011, to $6 billion. For its part, the Commerce Department is working to reduce trade barriers and to identify potential buyers for American exports.
Discussion Questions
1. A potential American exporter is worried that he?ll ?have to learn to speak German or French? if he wants to market to customers in Europe. Is this a realistic concern?
2. Why is it the case that many small business owners in the United States traditionally gave little thought to exporting?
3. How has the current economic environment impacted growth opportunities for small and medium-sized businesses?
4. Assess the prospects for achieving President Obama?s goal of doubling U.S. exports by 2015.

Large companies are those with 500 or more employees; midsized companies employ between and 50 and 500 people. Small companies are those with fewer than 50 employees. In March 2011, large companies in the United States hired 17,000 new employees. By comparison, midsized businesses hired 82,000 workers and small companies hired 102,000 workers.
These figures are consistent with studies that have shown that it is smaller-sized businesses rather than Fortune 500 ones that are the major source of new jobs during an economic recovery. Only about 1 percent of America?s businesses?300,000 out of 30 million total firms?export. And, nearly two-thirds of those companies export to just one country. For many of these firms, exporting represents a major untapped market opportunity. Recent trends have been encour- aging: In the 15-year period between 1992 and 2007, U.S. small busi- ness exports quadrupled to $400 billion. Even so, the U.S. Small Business Administration (SBA) estimates that there are tens of thousands of small companies that could export but do not. As SBA Administrator Steve Preston notes, ?Exports are the under-recognized opportunity for many American small businesses.?
A number of explanations have been offered for the low level of U.S. exports relative to other countries. In a recent interview, Fred B. Hochman, president of the U.S. Export-Import Bank, explained:
For many years, there was no reason to export because our market was large enough, and it?s easier. But, the world is changing. With 95 percent of the world?s customers living outside the United States, it doesn?t make sense for any business to limit itself to only talking to 5 percent of the world?s population.
Why do so many business owners consider marketing to home- country customers to be easier than exporting? Luz Hopewell, director of the Office of International Trade at the SBA, points out that export documentation is one key issue. She notes, ?You have to understand all the nuances of exporting to other countries. Sometimes if a firm doesn?t get the right license or doesn?t have the right paperwork, the product can be returned from the shipping docks.?
Other reasons have also been offered. One is the limited ambition exhibited by many American business owners; this may result in complacency and a lack of export consciousness. A second barrier is lack of knowledge of market opportunities abroad or misperceptions about those markets. The perceived lack of necessary resources? managerial skill, time, financing, and production capacity?is a third barrier that prevents companies from pursuing export opportunities. Unrealistic fears are a fourth barrier. When weighing export expansion opportunities, managers may express concerns about operating difficulties, environmental differences, and credit risks. Rounding out the list is management inertia?the simple inability of company personnel to overcome export myopia.
Despite these barriers, the current business environment is prompting many small business owners to look into exporting. For example, a weak U.S. dollar translates into more affordable prices in export markets. The trend toward free and open trade is another driving force. According to the SBA, Colombia, South Korea, and Panama account for about $16 billion in annual exports for small businesses. The recent ratification of free trade agreements (FTAs) with these three countries is expected to give exports a boost. Steve Preston, an administrator with the SBA, sums up the advantages of
free trade agreements this way: ?Tariffs come down dramatically, rules become simpler, and (intellectual property) protections become greater. That opens the door for small businesses.?
One company that stands to benefit from ratification of the U.S.-South Korea FTA is Blue Diamond, the California-based coopera- tive that exports almonds. South Korea?s almond market is currently worth $25 million each year, despite a 45 percent tariff on processed almonds and a 21 percent tariff on shelled almonds. Blue Diamond projects that its exports to South Korea will triple within 5 years of the FTA being implemented. One competitive threat to Blue Diamond comes from Australian almond producers who do not face trade barriers with South Korea.
The changing face of entrepreneurship in America is also contributing to the small business export trend. Researchers at Duke University and the University of California at Berkeley studied technology and engineering startups that were founded between 1995 and 2005. The researchers found that 25 percent of these firms had at least one founder who was not a U.S. national. Entrepreneurs with cultural ties to Asia, Latin America, Europe, and the Middle East are seizing the opportunity to market to customers in their respective homelands. Of course, the Internet is another factor driving interna- tional sales. These factors help explain the success of companies such as online cosmetics retailer www.beautyencounter.com. The company was started by Jacquelyn Tran, the daughter of Vietnamese immi- grants. In less than 10 years, annual sales increased from $150,000 to $20 million; today, many orders originate in Europe, Latin America, and Japan.
Meanwhile, three key agencies?the U.S. Commerce Department, the SBA, and the Export-Import Bank?are committing significant resources to the export initiative. Small businesses can now get loan guarantees of $5 million from the SBA; previously, the loan ceiling was $2 million. The Export-Import Bank increased its loan budget 20 per- cent for fiscal 2011, to $6 billion. For its part, the Commerce Department is working to reduce trade barriers and to identify potential buyers for American exports.
Discussion Questions
1. A potential American exporter is worried that he?ll ?have to learn to speak German or French? if he wants to market to customers in Europe. Is this a realistic concern?
2. Why is it the case that many small business owners in the United States traditionally gave little thought to exporting?
3. How has the current economic environment impacted growth opportunities for small and medium-sized businesses?
4. Assess the prospects for achieving President Obama?s goal of doubling U.S. exports by 2015.

Medical Technology Company/Excel Exercise #2: Liquidity Management – 2017

Medical Technology Company (MTC) is a New Jersey-based company specializing in manufacturing electronic medical equipment. MTC’s products are used in hospitals,
clinics and doctors offices. The company was founded by two doctors, Jose Garcia and Steve Picou and began operations in 2005, initially selling their products to
local clinics and hospitals, then expanding to the broader U.S. market.

They have expanded significantly in recent years and now sell a small portion of annual sales to companies in Canada, Mexico, and Europe. Due to the high level of
demand for their products, they are able to price all of their sales in US Dollars and sales have been growing rapidly (about 25% per year). For the last three years
(2014-2016) their profits have been exceptionally strong, but there always seems to be a shortage of cash for their operations.

Even though Jose and Steve have put in extra equity capital, reinvested all net profit back in the business, and used long-term borrowing as much as possible for the
expansion of production facilities, they are continually having to make short-term borrowing arrangements with their bank to cover funds shortfalls, sometimes with
very little notice.

Examine MTC’s current financial position and see if you can determine why they are having these liquidity problems. The firm’s current financial statements are
provided below. Assume a tax rate of 35% and a weighted average cost of capital (WACC) of 10%.

Note: Use end of period figures for ratio calculations rather than average figures.

Specific Questions:

1. Complete the table of key financial ratios on the last page using an Excel spreadsheet.
2. Answer the following questions in your writeup
a. Why may companies with high growth rates have liquidity problems?
b. How does the fact that this company is a manufacturer affect its liquidity needs as it grows?
c. What liquidity problems does this firm have and are they related to either the company’s growth and capital structure?
d. What would you do to solve this company’s problems?
3. Assume for forecasting purposes that following information for 2017:
a. The asset to sales ratio will be 1.25
b. The spontaneous liabilities to sales ratio will be 0.1
c. The profit margin will be 5% of sales and no dividends will be paid
d. Determine the AFN at sales growth of 5%, 10%, 15%, 20% and 25%

Medical Technology Company – Income Statements
All figures in $1,000
2014 2015 2016
Revenues 35,435 44,294 55,367
Cost of Goods Sold 21,071 25,690 31,006
Gross Profit 14,364 18,603 24,362
General Operating Expenses 4,846 5,594 6,642
Management Salaries 2,964 3,531 3,833
Insurance 1,053 1,214 1,364
Depreciation 1,243 1,561 1,645
Misc. and Other Expenses 993 1,138 1,340
Operating Profit 3,265 5,566 9,538
Interest Expense 2,122 3,825 6,642
Net Profit Before Taxes 1,143 1,741 2,895
Income Tax (35%) 400 609 1,013
Net Profit After Taxes 743 1,132 1,882
Medical Technology Company – Year-End Balance Sheet
All figures in $1,000

Assets 2014 2015 2016
Cash & Equivalents 787 524 72
Accounts Receivable 3,531 5,001 6,983
Inventory 7,166 9,579 12,014
Prepaid Expenses 730 1,053 1,231
Total Current Assets 12,214 16,157 20,300

Fixed Assets (net) 21,351 35,618 51,845

Total Assets 33,565 51,775 72,144

Liabilities & Equity
Accounts Payable 1,750 2,029 2,281
Deferred Taxes & Wages 733 1,021 1,325
Notes Payable 1,052 2,236 3,508
Current Liabilities 3,535 5,286 7,114

Long-Term Debt 13,477 22,804 33,463

Total Liabilities 17,012 28,090 40,577

Common Stock 15,000 21,000 27,000
Retained Earnings 1,553 2,685 4,567
Total Equity 16,553 23,685 31,567

Total Liabilities & Equity 33,565 51,775 72,144
Medical Technology Co. – Statement of Cash Flows – 2015-2016
All figures in $1,000
2015 2016
Cash Flows from Operations
Net Income 1,132 1,882
Adjustments to Reconcile NI to Cash
Depreciation 1,561 1,645
Increase in Accounts Receivable (1,470) (1,983)
Increase in Inventories (2,413) (2,435)
Increase in Pre-Paid Expenses (323) (177)
Increase in Accounts Payable 279 252
Increase in Accrued Taxes/Wages 288 304
Net Cash from Operating Activities (947) (511)

Cash Flows from Investing
Capital Expenditures (Net) (14,266) (16,227)
Depreciation Adjustment (1,561) (1,645)
Net Cash from Investing (15,827) (17,872)

Cash Flows from Financing
Increase in Notes Payable 1,184 1,272
Increase in Long-Term Debt 9,327 10,659
Increase in Common Stock 6,000 6,000
Net Cash from Financing 16,511 17,931

Net Change in Cash (263) (452)
Medical Technology Company – Key Financial Ratios – 2014-2016
2014 2015 2016 Ind. Avg.
Current Ratio (CA/CL) 3.50
Quick Ratio (Cash+AR/CL) 1.25
Cash Flow to Total Debt 0.15
Times Interest Earned (OP/Int Exp) 1.65
LT Debt to Capital (LTD/LTD+TE) 45%
Total Liabilities to Total Assets 50%
Return on Common Equity 5.6%
Return on Sales (NI/Sales) 5.0%
Return on Total Assets 4.5%
Interest/Total Debt 12.5%
Economic Value Added (EVA) +$2.0 M

Days’ Inventory 110
Days’ Receivables 32
Days’ Payables 33
Cash Conversion Cycle 109

Industry Averages are for similar sized companies in same industry as Medical Technology Company.

Analysis of Financial Statements – Practice Case
Rev. Oct 2016 – AFP Workshop
©2016 – The Treasury Academy, Inc. – All Rights Reserved 1
Medical Technology Company
Medical Technology Company (MTC) is a New Jersey-based company specializing in
manufacturing electronic medical equipment. MTC’s products are used in hospitals,
clinics and doctors offices. The company was founded by two doctors, Jose Garcia and
Steve Picou and began operations in 2004, initially selling their products to local clinics
and hospitals, then expanding to the broader U.S. market.
They have expanded significantly in recent years and now sell a small portion of annual
sales to companies in Canada, Mexico, and Europe. Due to the high level of demand for
their products, they are able to price all of their sales in US Dollars and sales have been
growing rapidly (about 25% per year). For the last three years (2013-2015) their profits
have been exceptionally strong, but there always seems to be a shortage of cash for their
operations.
Even though Jose and Steve have put in extra equity capital, reinvested all net profit back
in the business, and used long-term borrowing as much as possible for the expansion of
production facilities, they are continually having to make short-term borrowing
arrangements with their bank to cover funds shortfalls, sometimes with very little notice.
Examine MTC’s current financial position and see if you can determine why they are
having these liquidity problems. The firm’s current financial statements, calculation of
key ratios and industry averages are provided on the following pages. Assume a tax rate
of 35% and a weighted average cost of capital (WACC) of 10%.
Specific Questions:
1. Analyze the financial statements and ratios and assess the company’s financial
situation and viability as potential lending opportunity (banker’s view) or equity
investment (portfolio manager’s view).
2. Why may companies with high growth rates have liquidity problems?
3. How does the fact that this company is a manufacturer affect its liquidity needs as
it grows?
4. Are revenues, profits and cash flows all basically the same thing?
5. What liquidity problems does this firm have?
6. Are the liquidity problems related to the company’s growth and capital structure?
7. What would you do to solve this company’s problems?
8. Forecasting Question: Assuming a net profit margin of 4.0%, a total asset to sales
ratio of 125% and a spontaneous liability to sales ratio of 6.5%, what would the
need for additional funding be at sales increase levels of 10%, 15%, and 25%?
Analysis of Financial Statements – Practice Case
Rev. Oct 2016 – AFP Workshop
©2016 – The Treasury Academy, Inc. – All Rights Reserved 2
Medical Technology Company – Income Statements
All figures in $1,000
2013 2014 2015
Revenues 35,435 44,294 55,367
Cost of Goods Sold 21,071 25,690 31,006
Gross Profit 14,364 18,603 24,362
General Operating Expenses 4,846 5,594 6,642
Management Salaries 2,964 3,531 3,833
Insurance 1,053 1,214 1,364
Depreciation 1,243 1,561 1,645
Misc. and Other Expenses 993 1,138 1,340
Operating Profit 3,265 5,566 9,538
Interest Expense 2,122 3,825 6,642
Net Profit Before Taxes 1,143 1,741 2,895
Income Tax (35%) 400 609 1,013
Net Profit After Taxes 743 1,132 1,882
Analysis of Financial Statements – Practice Case
Rev. Oct 2016 – AFP Workshop
©2016 – The Treasury Academy, Inc. – All Rights Reserved 3
Medical Technology Company – Year-End Balance Sheet
All figures in $1,000
Assets 2013 2014 2015
Cash & Equivalents 787 524 72
Accounts Receivable 3,531 5,001 6,983
Inventory 7,166 9,579 12,014
Prepaid Expenses 730 1,053 1,231
Total Current Assets 12,214 16,157 20,300
Fixed Assets (net) 21,351 35,618 51,845
Total Assets 33,565 51,775 72,144
Liabilities & Equity
Accounts Payable 1,750 2,029 2,281
Deferred Taxes & Wages 733 1,021 1,325
Notes Payable 1,052 2,236 3,508
Current Liabilities 3,535 5,286 7,114
Long-Term Debt 13,477 22,804 33,463
Total Liabilities 17,012 28,090 40,577
Common Stock 15,000 21,000 27,000
Retained Earnings 1,553 2,685 4,567
Total Equity 16,553 23,685 31,567
Total Liabilities & Equity 33,565 51,775 72,144
Analysis of Financial Statements – Practice Case
Rev. Oct 2016 – AFP Workshop
©2016 – The Treasury Academy, Inc. – All Rights Reserved 4
Medical Technology Co. – Statement of Cash Flows – 2014-2015
All figures in $1,000
2014 2015
Cash Flows from Operations
Net Income 1,132 1,882
Adjustments to Reconcile NI to Cash
Depreciation 1,561 1,645
Increase in Accounts Receivable (1,470) (1,983)
Increase in Inventories (2,413) (2,435)
Increase in Pre-Paid Expenses (323) (177)
Increase in Accounts Payable 279 252
Increase in Accrued Taxes/Wages 288 304
Net Cash from Operating Activities (947) (511)
Cash Flows from Investing
Capital Expenditures (Net) (14,266) (16,227)
Depreciation Adjustment (1,561) (1,645)
Net Cash from Investing (15,827) (17,872)
Cash Flows from Financing
Increase in Notes Payable 1,184 1,272
Increase in Long-Term Debt 9,327 10,659
Increase in Common Stock 6,000 6,000
Net Cash from Financing 16,511 17,931
Net Change in Cash (263) (452)
Analysis of Financial Statements – Practice Case
Rev. Oct 2016 – AFP Workshop
©2016 – The Treasury Academy, Inc. – All Rights Reserved 5
Medical Technology Company – Key Financial Ratios – 2013-2015
2013 2014 2015 Ind. Avg.
Current Ratio (CA/CL) 3.46 3.06 2.85 3.50
Quick Ratio (Cash+AR/CL) 1.22 1.05 0.99 1.25
Cash Flow to Total Debt 0.14 0.11 0.10 0.15
Times Interest Earned (OP/Int Exp) 1.54 1.46 1.44 1.65
LT Debt to Capital (LTD/LTD+TE) 44.9% 49.1% 51.5% 45%
Total Liabilities to Total Assets 50.7% 54.3% 56.2% 50%
Return on Sales (NI/Sales) 2.1% 2.6% 3.4% 5.0%
Total Asset Turnover (Sales/TA) 1.06 0.86 0.77 0.90
Return on Total Assets 2.2% 2.2% 2.6% 4.5%
Equity Multiplier (TA/Eq) 2.03 2.19 2.29 1.25
Interest/Total Debt 14.6% 15.3% 18.0% 12.5%
Return on Common Equity 4.5% 4.8% 6.0% 5.6%
Economic Value Added (EVA) -$880,750 -$1,031,000 -$303,300 +$2.0 M
Days’ Inventory 124 136 141 110
Days’ Receivables 36 41 46 32
Days’ Payables 30 29 27 33
Cash Conversion Cycle 130 148 161 109
Industry Averages are for similar sized companies in same industry as Medical
Technology Company.
Medical Technology Company – Year-End Balance Sheet
2014 2015 2016
Revenues $35,435.00 $44,294.00 $55,367.00
Cost of Goods Sold $21,071.00 $25,690.00 $31,006.00
Gross Profit $14,364.00 $18,603.00 $24,362.00
General Operating Expenses $4,846.00 $5,594.00 $6,642.00
Management Salaries $2,964.00 $3,531.00 $3,833.00
Insurance $1,053.00 $1,214.00 $1,364.00
Depreciation $1,243.00 $1,561.00 $1,645.00
Misc. and Other Expenses $993.00 $1,138.00 $1,340.00
Operating Profit $3,265.00 $5,566.00 $9,538.00
Interest Expense $2,122.00 $3,825.00 $6,642.00
Net Profit Before Taxes $1,143.00 $1,741.00 $2,895.00
Income Tax (35%) $400.00 $609.00 $1,013.00
Net Profit After Taxes $743.00 $1,132.00 $1,882.00