American Apparel

The company’s net income has been unstable the past 5 years, rising to $15.48 million in 2007 from a net loss of $1.61 million the previous year. After a huge rise in net income over the course of one year in 2007, their profit started too decline before taking a huge dive to a net loss of $86.32 million in 2011. The sales amount has steadily increased and hovered over the $500 million mark the past few years. Their expenses have increased and unusual expenses have begun to accumulate since 2008. The liabilities, however, are the main concern of this near bankruptcy, rising from roughly $170 million to $250 million in 2011. The current liabilities have increased a substantial amount, from $60 million the previous year to $213 million in 2011. Current liabilities have to be repaid within a short period of time, and the company barely has enough liquid assets to pay it off. In addition to that, their cash amounts have been declining as well since 2007, dropping from $19 million to $7.66 million over the course of 4 years. Poor cash management also contributed to this decline. The company paid off roughly $65 million worth of long term debt in 2011, which likely contributed to their drop in cash.

American Apparel’s sales have been steady over the past 3 years. The company, however, has an excess of inventory, with an increase of $30 million while their sales have declined by around the same amount. The company would no longer need to purchase any inventory for the time being. American Apparel should look to invest this $14 million to marketing and operating activities to increase their sales. At the same time, the company will be able to speed up the process of obtaining a sufficient amount of cash to pay off their liabilities.

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