American Apparel Financial Analysis

OL 501 Milestone Two Worksheet

American Apparel: Drowning in Debt

Analysis of Financial Situation

           The analysis of financial situation of American Apparel reveals that the company’s performance and health overall is poor, because of many negative indicators. First of all, the company is not turning sales into profit, it hasn’t seen profit in years, and its debt is increasing from borrowing money at an exorbitant rate. The balance sheet is a summary of the dollar amounts of a firm’s assets, liability and owner equity accounts at the end of a specific account period (Pride, Hughes, & Kapoor 2017). It reveals that the company’s current assets are decreasing and there is a lack of liquidity, also the total stockholders’ equity is deficit $(77,404,000).

The income statement is a summary of a firm’s revenues and expenses during a specified accounting period (Pride, Hughes, & Kapoor 2017). The American Apparel’s income statement reveals that the company revenues are increased compared to previous years, but the expenses are higher than revenues. This is a negative indicator for the organization health.

 The statement of cash flows illustrates how the company's operating, investing, and financing

activities affect cash during an accounting period (Pride, Hughes, & Kapoor 2017). This

statement for the company shows that the company is in bed money situation. During 2013 net

cash decreased $(4,177).

• Fill in the table below with information from the financial statements provided in your chosen company’s case study. Calculate the % change between the current year and previous year for each item. Remember to correctly identify the currency for your case study.

• From the information in the table above, identify which line items are increasing with a plus sign and which are decreasing with a minus sign. Evaluate whether the change from the previous year is good or bad for the company’s performance and explain why.

Current assets are assets that can be converted quickly into cash or that will be used in one year or less such as cash, stocks, bonds, and other investments (Pride, Hughes, & Kapoor 2017). American Apparel had a decrease of current assets from 2012 to 2013 form -4.05%. 2013 was the worst financial year for the company because the company had difficulties transitioning to a new distribution center, which led to a significant increase in operating costs, while deliveries were disrupted (Mehta, 2016). This caused a decrease of current assets.

 Total assets had an increase from 1.68% in 2013 that was caused by implementation of two important strategy initiatives in the area of inventory management and the new distribution center in Los Angeles.

Current liabilities have slightly increased from 0.24%, while total debt of the company is increased by 34.31% from 2012 to 2013 from money borrowed with high interest rate.

Cost of goods sold has increased by 7.98% in 2013, this crushed both net and gross margins, which was caused by the increase of operating costs when the company had difficulties transitioning to a new distribution center.

Inventory is the sum of finished merchandise on hand, raw materials, and materials in process (Gill, J. O., Osgood, W. R., & Chatton, M., 2009). American Apparel’s inventory decreased by -2.78%.

The net loss in 2013 increased to a massive by 185.20%

• Use the information in the table above to calculate the following financial ratios. Explain what the result of each ratio says about your chosen company’s financial health.

• Current Ratio

                 American Apparel’s current ratio is 1.33, founded by dividing current assets by  

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