American Apparel Case Study

Links of Financial Accounting and sites:     

http://investors.americanapparel.net/releasedetail.cfm?ReleaseID=384730

http://www.theglobeandmail.com/report-on-business/canadian-investors-rescue-american-apparel/article1996130/

http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?lstStatement=Income&symbol=US%3aAPP&stmtView=Ann

http://investors.americanapparel.net/releasedetail.cfm?ReleaseID=346898

http://investors.americanapparel.net/releasedetail.cfm?ReleaseID=384730

Question 1: 

      American Apparel started declining during 2008 even though their net income has gone up and down for the past 5 years. Their net income in 2006 was a net loss of 1.61 million but the next year they have a net income of 15.48 million. Even after that increase they started going downhill until they have a net loss of 86.3 million in 2011. One reason for the near bankruptcy could be American Apparel’s Current Liabilities in 2011 is 213 million up more than 148.28 million from the previous year 64.88 million. This can cause a lot of problem because American Apparel doesn’t have enough cash to pay that huge amount in a period of time. Another reason could be is they might have expanded their company way too quickly in 2007 they have 162 retail stores and recently they have 280 retail stores a major increase in the past few years. They could have save that money for other purposes but poor management and decision making cost the company. Even though they have to pay off these debts this will lower their cash and making them look bad for potential investors looking to invest and help this company

Question 2:

      In my opinion I think American Apparel should invest the 14 million dollars in operating activities because this would help increase sales and the increasing in sales could result in cash coming in and helping American Apparel pay off some of that 213 million in their current liabilities this year. Also they should try to focus on getting a strong cash flow to attract potential investors therefore the price of their shares will go up and more cash for the company. Also American Apparel can improve their clothing style to attract the customers they used to have because it seems like their operating activities have been going down and they need to step it up. Adding new designs and style to their clothing stores would help attract customers.                   

Chapter 5 Blog "The North West Company Inc Announces Fourth Quarter Earnings and a Quarterly Dividend"

Article: http://www.marketwire.com/press-release/North-West-Company-Inc-Announces-Fourth-Quarter-Earnings-Quarterly-Dividend-TSX-NWF-1412619.htm

Summary: 

                In this article The North West Company Inc, a grocery and merchandise company announces their fourth quarter earnings and a quarterly dividend ended January 31, 2011. Their net earnings were 17.3 million, a decrease of 14.6% from last year. Their sales increase 1.1% to 374.5 million more than last year fourth quarter. Strong food sales growth in Northern Canada and Alaska banners contribute to the increase in sales but their continued sales weakness in their International Operations wholesale business and soft general merchandise sales performance in their Cost-U-Less stores were the main reason of their decrease in net earnings. North West Company’s trading profit or earnings before interest, income taxes, depreciation, and amortization decrease 4.6% to 30.9 million compare to last year fourth quarter. The lower gross profit rates and higher expenses in Canadian Operations were the leading factors contributing to this decrease. Also the trading profit decreased 3.9% and was 8.3% as a percentage to sales compared to 8.8% last year. The President & CEO Edward Kennedy said that the short-term cost pressure continued in the fourth quarter causing underperformance from their discount banners and more than the strong sales gains in Alaska and Northern Canada stores.    

Connections:

                This article shows examples of dividends declared and cash flows in the cash flow statement. The first example is dividends declared it is located in the financing section. Dividends Declared is shown in the article above but we do not know if the dividend declared is paid or not, also it can affect the cash flow statement if it’s paid or not. If the dividend declared is paid this will affect the cash flow statement and potentially the cash flow will go down but if it’s not paid it will not include in the cash flow statement which will not affect anything in the cash flow statement. My second example is cash flow because in the article there are a bunch of cash inflow and outflow and also this can affect the cash flow statement. An example of a cash inflow in the article is when North West Company Inc sales increase to 374.5 million which result in an increase and an example of a cash outflow is when they bought inventories for their International Operations wholesale business and soft general merchandise sales performance because the sales for these aren’t profitability which result in a decrease. In a cash flow statement it will summarizes all the cash flows which will give the company’s cash position during the year and in the article the company’s cash position resulted in a decrease.   

Reflection:

In my opinion I think the North West Company Inc is a successful grocery and merchandise company but they will need to act quickly to gain some profits in their International Operations wholesale business and soft general merchandise sales because if they don’t their net earnings will keep on decreasing even though they have strong food sales growth in northern Canada and Alaska. Also when shareholders see this they will stay away investing in this company because they’re not making any profits. One solution is they should lower their prices in their soft general merchandise sales hopefully the sales will increase and even out or counter their strong food sales. The other solution is they somehow need to get a strong cash flow because this will attract potential investors to invest in their company and more cash for the company. Therefore the profits they earned can cover their weakness in their International Operations wholesale business and soft general merchandise sales.     

FAC 12 Chapter 3 "Hike likely to hamper Business"

Article : http://www.nwherald.com/2011/01/12/hike-likely-to-hamper-businesses/a5yzd0x/

Summary:

In this article businesses are revising their plans and budget after a 46 percent corporate tax increase was approve by the Legislature. For many businesses struggling with the economic recession in the States, the tax increase couldn’t come at a worse time. Catty Corps, a flexible packaging manufacturer in Harvard, Illinois had planned to invest money into new printing presses, but due to the increase in corporate tax the owner of Catty Corps Bruce Scott said “Business has gotten so competitive, and profit margins have shrunk,” also he said. “It makes it more difficult to justify the expense of new equipment with these additional burdens.” The company which has 70 employees is starting to settle in its new location, but the higher corporate tax rates won’t help. Critics countered that even with the increase; Illinois tax rate will be lower than the neighboring states Wisconsin and Iowa. Even if it’s lower, many businesses are concerned about the effect of the tax increase. One owner believes that people will rather go to different states than Illinois. Jim Haisler, CEO of the McHenry County Association of Realtors, said the corporate rate would take a toll on real estates businesses as well. Even though many other businesses are making profits many will be concern that near future the younger employee are going to take the huge hit of the income-tax increase. Examples of how businesses will be affect from this is if a business earned around $25,000 in revenue and the new 7% corporate tax is applied ( old one is 4.8%) the business will have to pay $1,750 in taxes. For businesses that is making around 50-100 million dollars of revenue they will probably paid around 2 to 4 million dollars of taxes. 

Connections:

       In this article it shows examples of corporate income taxes and revenue because many businesses in Illinois are taking a huge hit in their economy due to the 46 percent corporate tax increase was approve by the Legislature. Also I think this is a huge because the economy around the United States is slowly improving than suddenly the state of Illinois approve on a 46 percent corporate tax which will affect the state economy and many people will chose to go to other states than Illinois. Illinois old corporate tax is 4.8 percent and it increase up to 7 percent so to calculate how much corporate tax they will have you multiply the Revenue they earned and the new corporate tax which is 7% you get how much a company or business need to pay. For example if company revenue is 10 million dollars and the corporate tax is 7% you multiply them together to get $ 700,000 dollars they need to pay (10,000,000 x 0.07 = 700,000). Finally, the second example is revenue because revenue of the businesses and companies will be affected due to this tax and also can’t afford to pay for their business or company forcing them to go bankrupt. This can also affect the net income of businesses, and businesses will have to treat it as an expense now. Than businesses and companies will have to rise their and less people will want to buy goods.

 Reflection:

      In my opinion I think the Legislature approving the 46 percent corporate tax is an outrage for businesses because the economy is just coming back and than BAM! The Legislature approve this corporate tax that will change the economy of Illinois and businesses and companies will have to think fast decisions on where they’re heading because they’re going to paid more on taxes. This can cause higher unemployment rate and many businesses and companies will close down due to this. Basically everyone will be affected of this, from businesses to kids. I think this show the government in need of more revenue for them and businesses and companies getting more expenses which is bad. My only solution is the government shouldn’t approve this plan and try something else like lowering their spending or investing on something to get revenue so there would be any outrage from the people.