Question 1
Reviewing the available financial statements from 2007-present, as well as past articles, when did the company start declining? And where?
American Apparel is a well-known international clothing manufacturer, and it was one of the fastest growing companies in the Untied States. However, American Apparel almost went bankrupt on account of its dramatically increasing selling, general, and administrative expenses. After examining American Apparel’s financial statements, we can see American Apparel has been facing a financial decline since 2008, and its major downturn resulting from its recent sexual harassment lawsuits against the company forced the company to declare bankruptcy. The company's image has been damaged up to a certain extent. In 2010, the company suffered from a great amount of expenses, and it eventually had a substantial net loss of $86.32 million a the end of 2010. Besides the multiple sexual harassment lawsuits, American Apparel also had issues with unauthorized workers and it was forced to fire 1500 experienced workers in 2010. Its productivity and output was drastically reduced, and it resulted in a major downfall in business. Eventually, American Apparel's operating revenue was not able to cover its constantly increasing expenses in 2011, and it had to liquidate since it did not get enough money to keep running. However, an $80 million loan has been recently injected into the business, saving the company from a bankruptcy.
Question 2
Take a look at the recent financial statements (cash flow statement in particular) – with 14 million injected into the company right away, how should the company allocate this money? Into which activities? And why
With an injection of $14 million into the business, American Apparel was saved from bankruptcy. From my perspectives, American Apparel should use this money to clear some of its debts first so that the public can receive the message that American Apparel is still a strong company. Also, more money should be allocated to marketing and developing. A good marketing strategy can bring the company a better sale and more inflow of cash, and it would help the company to rebuild a healthy image. Similarly, developing different production line would increase the company's competitiveness as well as its productivities. In addition, since many experiences workers were fired in 2010, I think they should also use this money to train more workers so that their productivity can stay stable and saturated.
Links:
http://www.google.ca/finance?q=AMEX:APP&fstype=ii
http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=app
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