Financial Statements
Question 1:
Judging from the American Apparel’s income statements available from 2007-present, signs of declination were projected as early as 2008. The declination of the business was resulted by the increase of expenses and the lack of sales. The unusual expenses began to accumulate since 2008 from $0.64 million to $8.6 million as of 2010. The accumulation of the unusual expenses has contributed to American Apparel’s declination. In addition, due to the rapid expansion of the business and the inflation of raw materials for production, the cost of revenue has also increased over the years. In addition, the lack of sales is evident in the company’s balance sheet as its inventory figures decreased from 2008 to 2009, in an attempt to rid its excess inventory from the previous year. Furthermore, the company’s ways of advertising has led to its own demise. Through the provocative advertisements, the company has tarnished its own reputation and has raised concerns to many of its consumers regarding the suggestive advertisements. On top of the racy advertisements, American Apparel’s CEO, Dov Charney, is currently facing a series of lawsuits regarding sexual assaults to several employees which further damages the company’s reputation.
Question 2:
From my perspective, I believe that American Apparel should allocate its recent $14 million injection into Research and Development under investing activities. By providing its consumers with the fresh, slick, and comfortable fabrics, while maintaining its current fashion styles, the company has a shot at reviving its tarnished image. Successful fashion company such as Nike is always coming up with new materials to lighten its products and improve the qualities in order to monopolize the world of sporting fashion. Moreover, a fraction of that $14 million funding should be invested into the advertising expense under investing activities to revamp its reputation for provocative and racy advertisements in the past.
Monday, May 2, 2011
Friday, April 8, 2011
Buffett puts US$9B in deal for engine oil
Article:
http://www.nationalpost.com/todays-paper/Buffett+puts+deal+engine/4439806/story.html
Summary:
The article revolves around Berkshire’s recent investments from the acquisition of Lubrizol Corp. to the order of approximately 120 Bombardier Inc. planes. Berkshire has decided to acquire Lubrizol Corp. by means of purchasing Lubrizol’s shares with cash at US$135, approximately 28% more than the closing price on March 11. Immediately after the news release of Berkshire’s acquisition, Lubrizol’s share price increased by 27%. Through the purchase of Lubrizol, a maker of engine lubricants, Berkshire can fuel its current investments on cars, trucks, freight railroads, and luxury jets. In addition, Berkshire has decided to purchase approximately 120 Bombardier Inc. planes in an attempt to rebound in luxury travel. Moreover, firms will soon invest into fuel products that improve transportation efficiency due to the significant increase in fuel prices as stated by Meyer Shields, a Baltimore based analyst.
Connection:
The recent US $9-billion acquisition of Lubrizol Corp. by Berkshire would cause a decrease in the cash flow statement. As a result, the Purchase of property, plant, and equipment account, under investing activities, will have a negative value of $9 billion because Warren Buffet’s Berkshire will acquire Lubrizol Corp’s share in terms of cash at $135 a share. The 27% increase in Lubrizol’s share value after the acquisition by Berkshire could potentially lead to the distribution of dividends depending on the Lubrizol’s shareholder’s decision. The value of dividends per share can be calculated by adding net income to the difference of the beginning and ending retained earnings, all divided by the number of shares issued. In addition, Berkshire’s NetJets Inc. filed an order for approximately 120 Bombardier Inc. planes on March 2 which would result in an overall decrease in the cash account and an increase in the NetJets Inc.’s capital assets with respect to the total value of the ordered planes. Moreover, as time passes, the accumulated amortization account would increase due to the annual depreciation of the company’s capital assets such as the Bombardier Inc. planes.
Reflection:
From my perspective, I believe that Berkshire’s acquisition of Lubrizol Corp is definitely beneficial Berkshire. Not only can Berkshire reduce its fuel and lubricant expenses for its current investments in transportations which include cars, trucks, freight railroads, and even jets, it can also take advantage of the increasing demand for engine lubricants and fuel as shipping of goods increase around the world. However, despite the recent increase of 27% in Lubrizol’s share value after the acquisition, the likelihood of dividends distribution by Berkshire towards the end of the year is highly unlikely. Berkshire has a reputation of conserving cash dividends; in fact, Berkshire has not authorized a dividend to its shareholders since 1967. Personally, I would not invest into Berkshire due to the minute profit, high share price value, and the lack of dividends. Despite the large scaled acquisition of Lubrizol, the second largest acquisition the recent decade by Berkshire, the reduction of $9 billion in the company’s cash flow should not affect the company’s day to day operation since the company is in possession of approximately $40 billion cash. With the excess reservoir of cash, Berkshire can continue to invest into what it seems beneficial to both the company and shareholders. However, Berkshire should conserve a portion of its cash for emergencies, investment failures, or future economic crisis.
http://www.nationalpost.com/todays-paper/Buffett+puts+deal+engine/4439806/story.html
Summary:
The article revolves around Berkshire’s recent investments from the acquisition of Lubrizol Corp. to the order of approximately 120 Bombardier Inc. planes. Berkshire has decided to acquire Lubrizol Corp. by means of purchasing Lubrizol’s shares with cash at US$135, approximately 28% more than the closing price on March 11. Immediately after the news release of Berkshire’s acquisition, Lubrizol’s share price increased by 27%. Through the purchase of Lubrizol, a maker of engine lubricants, Berkshire can fuel its current investments on cars, trucks, freight railroads, and luxury jets. In addition, Berkshire has decided to purchase approximately 120 Bombardier Inc. planes in an attempt to rebound in luxury travel. Moreover, firms will soon invest into fuel products that improve transportation efficiency due to the significant increase in fuel prices as stated by Meyer Shields, a Baltimore based analyst.
Connection:
The recent US $9-billion acquisition of Lubrizol Corp. by Berkshire would cause a decrease in the cash flow statement. As a result, the Purchase of property, plant, and equipment account, under investing activities, will have a negative value of $9 billion because Warren Buffet’s Berkshire will acquire Lubrizol Corp’s share in terms of cash at $135 a share. The 27% increase in Lubrizol’s share value after the acquisition by Berkshire could potentially lead to the distribution of dividends depending on the Lubrizol’s shareholder’s decision. The value of dividends per share can be calculated by adding net income to the difference of the beginning and ending retained earnings, all divided by the number of shares issued. In addition, Berkshire’s NetJets Inc. filed an order for approximately 120 Bombardier Inc. planes on March 2 which would result in an overall decrease in the cash account and an increase in the NetJets Inc.’s capital assets with respect to the total value of the ordered planes. Moreover, as time passes, the accumulated amortization account would increase due to the annual depreciation of the company’s capital assets such as the Bombardier Inc. planes.
Reflection:
From my perspective, I believe that Berkshire’s acquisition of Lubrizol Corp is definitely beneficial Berkshire. Not only can Berkshire reduce its fuel and lubricant expenses for its current investments in transportations which include cars, trucks, freight railroads, and even jets, it can also take advantage of the increasing demand for engine lubricants and fuel as shipping of goods increase around the world. However, despite the recent increase of 27% in Lubrizol’s share value after the acquisition, the likelihood of dividends distribution by Berkshire towards the end of the year is highly unlikely. Berkshire has a reputation of conserving cash dividends; in fact, Berkshire has not authorized a dividend to its shareholders since 1967. Personally, I would not invest into Berkshire due to the minute profit, high share price value, and the lack of dividends. Despite the large scaled acquisition of Lubrizol, the second largest acquisition the recent decade by Berkshire, the reduction of $9 billion in the company’s cash flow should not affect the company’s day to day operation since the company is in possession of approximately $40 billion cash. With the excess reservoir of cash, Berkshire can continue to invest into what it seems beneficial to both the company and shareholders. However, Berkshire should conserve a portion of its cash for emergencies, investment failures, or future economic crisis.
Tuesday, January 18, 2011
Intel and Nvidia Announce Settlement
http://torontostar.morningstar.ca/globalhome/industry/news.asp?articleid=366052
Summary:
After a disagreement with regards to a prior licensing pact between Intel and Nvidia which allowed Nvidia to produce chipsets that are compatible with Intel’s processor. However recently, Intel settled the legal dispute and formed a new cross-licensing deal with Nvidia through an agreement to pay $1.5 billion over the next five years. Despite having to pay $1.5 billion, Intel has now limited Nvidia’s access to some of Intel’s microprocessor patents, which are sufficient to prevent Nvidia from further making chipsets for Intel’s processors. Nevertheless, the access to Intel’s technology will certainly benefit Nvidia’s “Project Denver”, an initiative with ARM to develop an ARM-based CPU to contend the x86 CPU’s from Intel and AMD.
Connection:
The legal dispute mentioned in this article is an example of an unusual or infrequent event described in Chapter 3. In order to settle the legal dispute, Intel decided to pay $1.5 billion to Nvidia. Technically speaking, the $1.5 billion cross-licensing fee can be classified as an operating expense since Intel is implementing Nvidia's products as a part of Intel's CPUs. However, due to the rarity of this event, Intel has to record the $1.5 billion fee under the losses from unusual or infrequent events section in the multi step income statement. As a result, the $1.5 billion licensing fee will be entered in the multi-step income statement as a negative value to reduce the net income.
Reflection:
From my perspective, I believe that Intel's decision to settle the legal dispute with a $1.5 billion cross-licensing fee is a strategic decision. This fee allows Intel to implement Nvidia's graphic cards into their CPUs and blocks the Nvidia's access to some of its advanced technologies. Also, by settling with a cross-licensing fee during the early stages of Nvidia's "Denver Project", Intel's CPU technology will be one step ahead of Nvidia and still maintain its quality by implementing Nvidia's high quality graphic cards into their CPU. Even though the cross-licensing with Nvidia is only effective for the another 5 years, Intel have many options during those 5 years to plan whether they should develop its own graphic cards, cooperate with another graphic cards supplier, or even continue the cross-licensing with Nvidia.
Summary:
After a disagreement with regards to a prior licensing pact between Intel and Nvidia which allowed Nvidia to produce chipsets that are compatible with Intel’s processor. However recently, Intel settled the legal dispute and formed a new cross-licensing deal with Nvidia through an agreement to pay $1.5 billion over the next five years. Despite having to pay $1.5 billion, Intel has now limited Nvidia’s access to some of Intel’s microprocessor patents, which are sufficient to prevent Nvidia from further making chipsets for Intel’s processors. Nevertheless, the access to Intel’s technology will certainly benefit Nvidia’s “Project Denver”, an initiative with ARM to develop an ARM-based CPU to contend the x86 CPU’s from Intel and AMD.
Connection:
The legal dispute mentioned in this article is an example of an unusual or infrequent event described in Chapter 3. In order to settle the legal dispute, Intel decided to pay $1.5 billion to Nvidia. Technically speaking, the $1.5 billion cross-licensing fee can be classified as an operating expense since Intel is implementing Nvidia's products as a part of Intel's CPUs. However, due to the rarity of this event, Intel has to record the $1.5 billion fee under the losses from unusual or infrequent events section in the multi step income statement. As a result, the $1.5 billion licensing fee will be entered in the multi-step income statement as a negative value to reduce the net income.
Reflection:
From my perspective, I believe that Intel's decision to settle the legal dispute with a $1.5 billion cross-licensing fee is a strategic decision. This fee allows Intel to implement Nvidia's graphic cards into their CPUs and blocks the Nvidia's access to some of its advanced technologies. Also, by settling with a cross-licensing fee during the early stages of Nvidia's "Denver Project", Intel's CPU technology will be one step ahead of Nvidia and still maintain its quality by implementing Nvidia's high quality graphic cards into their CPU. Even though the cross-licensing with Nvidia is only effective for the another 5 years, Intel have many options during those 5 years to plan whether they should develop its own graphic cards, cooperate with another graphic cards supplier, or even continue the cross-licensing with Nvidia.
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