American Apparel

As I reviewed the available financial statements from 2007-present, the company began to decline in the late 2008.  However, the causes of the decline began with American Apparel CEO, Dov Charney, being involved in several sexual harassment in the mid 2008s. Since lawsuits have yet to be proven, their sales were still decent, which resulted in American Apparel beginning to stockpile their inventories during 2009. However, more sexual harassment cases popped out later in 2009, which could possibly be why many customers lost trust in American Apparel’s image, causing its downfall. Also Dov Charney has been sued from sexual harassment therefore it caused the company to have suffered a massive loss in cash on court. However the critical point of its downfall seems to be American Apparel being involved in illegal immigration issues.  American Apparel has been hiring experienced illegal immigrants. As a result they terminated 1500 experienced workers which is around 10% of their workforce. Therefore their sales went down because of the loss of workers to provide services.  Since sales went down therefore the amount of money coming into the company decreased. At the same time, the deadline of other accounts payable came up therefore they began paying their creditors. As a result they were running short on money and began to borrow huge long term debts. Their long term debt has risen from $6.35 million, 2009, to $138.48 million, 2010. They almost went into bankruptcy in 2010 however they borrowed $80 million loan just to escape a looming bankruptcy. Also American Apparel has the image of semi- pornographic because all of their advertisements are very disturbing. It is like sex advertisement on television which resulted in many people to turn away from American Apparel.

I believe before any money is used for investing activities partial of the money should be used to pay off the debt for American Apparel. Paying off the debt would establish trust with your creditors. As a result they may not pressure you that often, since there is a well establish connection. Also you can guarantee them that American Apparel would have money, because a Canadian investor would be investing more money to the company. The other portion of the cash should be used in investing activities such as advertising because American Apparel must refresh their image of semi-pornographic into a healthier image which could be accepted more easily by the public. The advertisement from American Apparel has been stepping past the border line therefore receiving many critics.  Also advertisement can send a message to the public that American Apparel is still a powerful company and continuing to operate. Some money could be used into R&D to grab the attention of new customers and previous customers who have left American Apparel. After revenue comes in, money would be used to clear off debt again to provide creditors an image that American Apparel is very competitive and a trust worthy company.  With a new image American Apparel would be able to gain back its original popularity and a healthier reputation. Once the company is back on track, revenue would be coming in and expansion could happen in the future.

American Apparel

http://www.sec.gov/Archives/edgar/data/1336545/000119312509174404/d10ka.htm http://www.sec.gov/Archives/edgar/data/1336545/000119312509230187/d10q.htm http://www.sec.gov/Archives/edgar/data/1336545/000144530510001313/app0930201010q.htm

Part 1:

As I reviewed the available financial statements from 2007-present, the company began to decline in the late 2008.  However, the causes of the decline began with American Apparel CEO, Dov Charney, being involved in several sexual harassment in the mid 2008s. Since lawsuits have yet to be proven, their sales were still decent, which resulted in American Apparel beginning to stockpile their inventories during 2009. However, more sexual harassment cases popped out later in 2009, which could possibly be why many customers lost trust in American Apparel’s image, causing its downfall. However the critical point of its downfall seems to be American Apparel being involved in illegal immigration issues.  American Apparel has been hiring experienced illegal immigrants, which has been discovered in 2010. As a result they terminated 1500 experienced workers causing its downfall in sales. They weren’t doing so well in 2009 and survived until 2010 where they almost got into bankruptcy. However they borrowed an $80 million loan just to escape a looming bankruptcy.

Part 2:

I personally think the $14 million cash should be used in investing activities such as advertising because American Apparel must refresh their image of semi-pornographic into a healthier image which could be accepted more easily by the public. The advertisement from American Apparel has been stepping past the border line therefore receiving many critics.  Also advertisement can send a message to the public that American Apparel is still a powerful company and continuing to operate. Some money could be used into R&D to grab the attention of new customers and previous customers who have left American Apparel. With a new image American Apparel would be able to gain back its original popularity and a healthier reputation. Once the company is back on track, revenue would be coming in and expansion could happen in the future.

Apple First Quarter Results

http://www.nzmac.com/news/apple/apple-reports-first-quarter-results-2011.html

Summary:

It was announced on January 19, 2011 that Apple has earned a net income of $6 billion in the 1^st quarter period. The results are fascinating compared to previous quarter results of revenue with only $15.68 billion and net quarterly income of $3.38 billion. It was also reported that the sales of Mac, iPhone and iPad established the highest revenue and earnings ever. Revenue grew by 71% and earnings grew by 78%. It was announced that Apple sold 4.13 million Macs, 16.24 million iPhones, 19.45 million iPods, and 7.33 million iPads during the 1^st quarter period.  The iPhones sold in this quarter represents an 86% unit growth compared to previous quarter results. Also the Macs sold this quarter represent a 23% unit increase over the year-ago quarter. Steve Job, Apples CEO, announced “We are firing on all cylinders and we’ve got some exciting things in the pipeline for this year including iPhone 4 on Verizon which customers can’t wait to get their hands on. Apple’s CFO, Peter Oppenheimer said, “Looking ahead to the second fiscal quarter of 2011, we expect revenue of about $22 billion and we expect diluted earnings per share of about $4.90.

Connection:

In chapter 5 it mainly discusses about cash flow statements and the importance of this financial statement in a company.  Cash flow statement is a financial statement that summarizes the cash flows of the company, categorized into operating, financing and investing activities.  It was reported Apple has a net income of $6 billion in 1^st quarter period. Apple could use the indirect approach method from using the $6billion as a starting point to determine the cash flow from operating activities. Indirect approach is a method of calculating a company’s cash from operations in which the net income is adjusted for non-cash revenues or expenses. This article also connects into the cash-to-cash cycle of Apple. Cash-to-cash cycle is the period of time when cash is used to purchase inventory and when cash is received from the sale of inventory. The cycle reflects Apple purchased a lot of inventories, cash outflow, and as a result, they made a net profit of $6 billion, cash inflow, from the sale of iPods, iPads, Macs and iPhones in the 1^st quarter period. Steve Jobs, Apples CEO, said “We had a phenomenal holiday quarter with record Mac, iPhone and iPad sales.” Apple sold 16.24 million iPhones, 4.13 million Macs and 7.33 million iPads. As a result, inventories for iPhone, iPads and Macs would decrease. Therefore it would represent an increase in cash flow in the operating activities. Dividends for Apple could also be calculated from the formula Beginning Retained Earnings- Ending Retained Earnings+ Net Income= Dividends. Previously, it was announced from Steve Jobs, CEO of Apple, that he prefers a giant cash stash in the company. 

Reflection:

In my opinion I think Apple is a very competitive and successful company, therefore great results were achieved from them with a $6 billion net profit for the 1^st quarter period. However iPod sales this quarter represented a 7% drop compared to previous quarter. Therefore I believe partial of the money earned this quarter should be used on advertisement on iPods and iPhones. However the rest of the money earned should be kept in the company for strategic purpose or incase of mistakes. Previously, Steve Jobs, CEO of Apple, announced he prefers a giant cash stash in the company, and I support his decision. Therefore I believe Apple would not give out too much dividends to shareholders for this quarter. It would be an advantage having cash stash left in the company since problems can be solved immediately and easily without needing to borrow money from the bank. Also with a strong cash flow it can attract potential investors into investing into Apple. As a result shares would rise from the investment. Money generated from potential investors could be then spent on advertisement and R&D because of high competition. As a result, Marketing and R&D would be the major roles of attracting customers into buying Apple products. Therefore huge amount of cash should be spent in those areas in order to generate a high revenue and cash.

Intel Best 4th Quarter In Company History

http://money.cnn.com/2011/01/13/technology/rnings/index.htm

Summary:

On Thursday January 13, 2011 it was reported that Intel Corporation had the best fourth-quarter earnings in company history. Both the Revenue and profit have set new records. Intel has earned revenue of $43.6 billion, operating income of $15.9 billion, and a net income of $11.7 billion. Paul Otellini, Intel president and CEO, said “2010 was the best year in Intel’s history. We believe that 2011 will be even better.” Intel has recently posted its earning per share of 59 cents which was higher than forecasted of 53 cents per share. On Monday Intel has announced a $1.5 billion, six-year contract with Nvidia, graphics chip-maker, which will allow Intel to access for graphic chips.

Connection:

In chapter 3 it mainly discusses about the accounting cycle which describes how transactions are measured, recorded, and communicated to users in the form of financial statements. Transaction analysis is when a transaction occurs and accountants would decide which accounts would be affected. It was announced that Intel Corporation had the best fourth-quarter earnings in company history with revenue of $43.6 billion. This transaction would affect the accounts revenue and cash. T accounts are devices used to represent a ledger account. If this transaction were to be recorded on T accounts, revenue would be a credited $43.6 billion on right hand side of the T account, and the corresponding account, cash, debited $43.6 billion on the left hand side of the T account. Temporary accounts such as expenses and revenues would be closed in the Income summary accounts. Intel has revenue of $43.6 billion and expenses approximately $31.9 billion. An Income Summary balance can be calculated by $43.6billion-31.9billion= $11.7 billion. Income summary accounts would then be closed in the retained earnings account. Assume Intel have retained earnings of $60 billion and $5 billion of dividends declared. An updated balance for the retained earnings account can be calculated $60 billion+$11.7 billion-$5 billion=$66.7 billion. This article also relates to the Multi-step income statement. Multi-step income statement is an income statement which revenues and expenses from different sources are shown in different sections of the statement. It was reported Intel have an operating income of $15.9 billion. Therefore this income would be the total income from Intel operations such as Sales or service, cost of good or from other operating revenues and expenses.

Reflection:

In my opinion I think Intel is a very strong and successful company therefore it was able to have such an extraordinary result for the year. However I disagree Intel to have a $1.5 billion, six-year agreement with Nvidia, graphic chip-maker, that will allow Intel access to patents for graphic chips. I believe spending $1.5 billion would be too much since deficit is happening to many companies around the world. I suggest Intel should keep its money incase of mistakes that occurs. It would be an advantage to have a strong cash flow, and cash stash left in the company since problems can be solved more quickly and easily.  With a strong cash flow it would give Intel an opportunity to attract potential investors to invest into Intel. Therefore there could be a huge possibility for shares of Intel to rise from investments. After a huge cash stash have been generated from potential investor’s investment, a portion of the money can then be thought to be spent into marketing or R&D because of high competitions.  Intel’s chief rival, chip maker AMD(AMD,Fortune 500) have recently announced the immediate resignation of CEO Dirk Meyer. Therefore I strongly believe $1.5 billion should not be spent, and instead to wait for AMD’s next decision.