American Apparel Case Study

1. From reviewing the American Apparel’s financial statements from 2007 to present, it is clear that the company started declining in 2008. The unfortunate downfall of situations solely originated from Dov Charney, CEO of American Apparel and the “bad” decisions made internally and externally of his company. The financial statements must have been affected by the numerous sexual harassment lawsuits, offensive advertising strategy, and overall negative image the brand has been projecting which made the company lose an adequate amount of money from the business. There was even a case where he used Woody Allen in his ads without Allen’s permission which Charney got sued for and obviously lost to. Miscellaneous activities like those which can be avoided, give a negative impact to the financial statements, especially if there have been more than one case. Charney also had to layoff 1,500 employees because of illegal immigrants working with respectable wages and benefits. This made the company lose key efficiency workers in running their business, of course because of the employee turnover rate, etc. made them lose more money for that certain time period.

2. This company can or should effectively use the 14 million into their operating activities so that they could at least keep their company going and even increase in their sales where it is most needed to keep up with their business. Some suggestions might be to restructure and reevaluate where they are going with their company, especially with their present image they are projecting. To help them bounce back into their regular routine, they should look into a different path in their advertising where they can reach a wider market, less offensive and more appealing for everyone else new or interested in the brand. Also, Charney needs to be on point with the type of clothing or “genre” of clothing since he is trying to change up with American Apparel’s “look”. It’s a very risky time for him to do so, since he still needs to recover but it can also benefit him if his consumers response is positive enough to start a new trend again.

In all honesty though, I think Charney should “clean up his act” and get on point with his overall company image. It is almost as if he has to regain the respect from people who used to be interested in his clothing because he ruined it through his acts and advertising. On top of that, all of the controversy he has caused already with his personal life and company.

Chapter 5 - Cash Flow Statement

http://www.theglobeandmail.com/globe-investor/ford-rides-new-models-to-26-billion-profit/article1998866/

Summary:

In summary of the above article, Ford Motor Co. posted its best first-quarter period in 13 years because of their new arrival small cars, Ford Explorer and Fiesta. Their profit jumped 22 per cent, their best first-quarter performance since 1998; their eighth straight quarterly profit from their near-bankruptcy 5 years ago. Also, their revenues went up 18 per cent which was way higher than what the analysts were projecting. The company saw an especially strong growth in Asia. The redesigned Explorer SUV got more miles per gallon which more than doubled in US sales. The rising gas prices has been pushing buyers to small, more fuel efficient cars which can affect Ford’s sales later on but Ford has been able to command for higher prices for cars because consumers have been adding expensive options like the Sync entertainment system. Ford still has trouble spots like higher prices for commodities and could increase by the end of the year. They lost some market share in US, Europe and South America in first quarter because it didn’t match incentive spending as General Motors Co. did but Ford is two fewer brands shorter. They are trying to be disciplined and won’t produce more than they can sell. That cycle leads to big discounts with Ford which helps them pay off debt. It has led them to a more cash than debt ratio. Investors are still keeping an eye out for trouble though.

Connection:

The cash flow statement is the main point of the article and the chapter in the textbook. It is Ford’s best first-quarter period in 13 years, which means that there is more income coming in than there was 13 years ago. This is because Ford put an effort and focused towards more research and development and came up with two new arrival cars Ford Explorer and Fiesta. These cars have been doing well in the market as it features new expensive options that help them drive up the costs of the vehicle. Also the redesigned Explorer SUV used more miles per gallon which doubled in US sales which benefited greatly because gas prices have been rising. Overall, the Ford company is generating more cash to debt ratio than they did before because of their “won’t produce more than they can sell” rule that has recently taken place.

Reflection:

In my opinion, I think Ford has really been stepping up their game in the market overall. It seems as if they have effectively reassessed their sales strategies and it has been working to their great benefit. Although there are some trouble spots still unresolved, it is good that their investors are keeping a close eye on them. It ensures their consistency with keeping up with their company goals and expectations of others involved with their business. It also gives Ford a confidence boost to keep innovative and on top of their game among their major competitors.

Chapter 3 - Processing Data through the Accounting System

http://www.nationalpost.com/Morgan+needs+stars+align/4141820/story.html

Summary:

Morgan Stanley boss, James Gorman was only trying to fulfill Wall Street bank’s attempt at perfection. But might’ve not necessarily done it in such an ethical way because they’re trying to improve their credit profile but wiped US$945-million from revenue. Even though an accounting rule reinforced firms to mark to market any changes in the prices of their own liabilities and it shouldn’t change or affect any earnings account. From there on, the firm displays glitches in investment bank’s payout ratio droppings to look more in line with Goldman Sachs, and playing catch-up on rates and foreign exchange from an offset in all their revenue leaving the business with a US$29-million loss. This all seems too unfortunate for the matter, but Morgan Stanley still acknowledges Gorman’s work as the firm had a good 12 months and are now recovering and receiving profits with a steady progress towards 20% pre-tax margin.

Connection:

From this article and the textbook, the connection that is made is through the article’s accounting rule and the earnings account. The accounting rule stated in the article that firms are being forced to do: “to mark to market any changes in the price of their own liabilities” as a “handy way to assess differences in a firm’s quarterly credit profile for those too lazy to check out bond and credit default swap charts”. But to be able to do proper accounting practices, there shouldn’t be any “lazy or short-cut” ways to record transactions. The only way is to actually record them, because the whole point is to determine how transactions should be recorded and how the presentation of items are to be easily understood to the people who reads them. It also ensures any problems that later comes up, to help back themselves up.

Reflection:

I think that James Gorman could’ve handled their financial issues differently because with the losses that have came up under his management and decisions have also impacted the way other firms or people look upon the Morgan Stanley firm. Sure the firm is now recovering from their mistakes and downfalls but now they have provided a negative image of themselves that other people might view them differently from what they were known to be before. The doubt that Morgan Stanley created to their followers is now greater than before all their financial crisis’s were happening. It really brought out the firm’s immoral choices to a different understanding to the public and other firms. All there is to say is, at least they’re going through a rebuilding plan to regain their name.