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.
