Link to Financial Statements: http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=app
Question: Reviewing the available financial statements from 2007-present, as well as past articles, when did the company start declining? And where?
Answer: After a detailed analysis of American Apparels financial statements from 2007 to 2010, it is visible that the company started to decline in 2008. Various reasons lead to this downfall such as numerous sexual harassment lawsuits made against the CEO of American Apparel, Don Charney, in the years of 2008 to 2009. Another factor that had an impact in the company’s well-being was the fact that illegal, unauthorized workers were employed in their factories. As a result, many lawsuits were made against American Apparel for their horrible choices in employment which ultimately caused American Apparel to fire roughly 2000 employees from working in the factories. With so many workers laid off, American Apparel had a hard time recovering from their loss of employees causing a decline in productivity in the factories and in sales. With sales decreased combined with the many lawsuits and loss of employment, American Apparel was faced with a substantial net loss of $86.32 million in 2010. Because of this large loss, American Apparel was unable to sustain their company over the next year. Although in previous years American Apparel was seen as a new thriving company their many lawsuits and loss of employment caused the company to almost declare bankruptcy in August of 2010.
Question: 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?
Answer: The injection of $14 million temporary saved the company from bankruptcy in which they had almost needed to declare in the August of 2010. In my opinion, this $14 million dollars should be placed into operating activities where marketing activities are increased to try to grab consumers to purchase their products ultimately increasing their sales. Placing money into marketing will also help clean up American Apparels image from their previous sex harassment lawsuits with advertisements that are not sexual causing a lowered consumer interest. In addition, American Apparel should also focus in using the some of the money to develop newer products that will help increased consumer interest which will help gain sales once again.
