American Apparel Case Study

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Case study of American Apparel INC. Interpretation of Management and Financial situation 11/24/2014 By: Group 8 (SEC: B) Vivek Kr Sharma SMBA 14081 YSR Raghav SMBA 14070 Monty Singh SMBA 14038 Pratip Sinha SMBA 14089 Mohd. Wasim SMBA 14036 Case Facts – 1) American Apparel, a once upon a time prominent clothing line brand is now facing a major cash crunch as on April, 2014. 2) This is because they need to pay 13.4 billion USD as interest and have lots of other debt repayments. 3) The CEO Don Charney raised additional capital of 28.5 million USD by selling 61 million shares at only 0.50 cents per share. The buyer Johannes Milo Roth had the 2nd highest shares of the company next to the…show more content…
Its competitors are in better condition with Urban Outfitters at 3.5, American Eagle Outfitters at 2.3, and GPS Clothing at 3.2 and Express Clothing at 14.2. The industry average is at 2.5 and American Apparel is significantly lower than that number. Industry experts always say that if a company’s Price/Equity Ratio is lower than the industry average, there is something horribly wrong with the company in issues of management, operations or the company is on verge of getting a buyout. In the case of American Apparel, they have had stock prices falling resulting in a loss of over 86 million USD. They are also having questionable changes in top management with several executives coming from companies where they might have been responsible for the company’s debacle. The investors get cold feet when a company is having both its stock prices go down, coupled with management changes. That is what is happening with American…show more content…
Firstly and most importantly, in 2010, it incurred a substantial loss from operations with net income totalling 86 billion dollars. Going concern in the long run will be effected • Due to it’s extreme debt it has incurred, coupled with its inability to pay said debt back anytime soon, the company will not be able to pursue any of their expansion plans, thus leaving the company at a severe competitive disadvantage. If the company cannot find a solution to their financial situation very soon, it will then be forced to declare bankruptcy. • Its CEO, Dov Charney. is the brains behind American Apparel’s controversial, yet effective brand campaigns, his behaviour outside of the realm of company decision making has put his company in a very negative light on more than one occasion. Charney has been the subject of several sexual harassment lawsuits during his time as CEO. This kind of continued behaviour could very well drive down American Apparel’s brand image, and profits along with it
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