Question

1Describe in 200 words American Apparel negative profit margin ratio

2.Why they are losing money. In 2013 American apparel had a negative profit margin. PLEASE TYPE

Answer 1

a) American Apparel is the only online retailer operated based in Los Angeles , California founded by Canadian businessman Dov Charney in 1989. American Apparel companies negative profit margin rates speaks about the financial and investment health of the company. There are several reasons for having negative profit margin rates which in turn have impact on the structure of the company.Company structure have both the negative and positive impact on the analysis of its financial statement which helps them to come out with new structure which contributes for the change. Whenever there is negative impact the company would lose its customers because this industry is purely based on online mood.

The following are the reasons,

• Declined revenue.
• Poor marketing.
• Increased competitions.
• Increased cost.
• Increased labour cost.

Negative profit margin ratio can be interrupted within the context of the industry and past company performance likewise a negative margin would mislead the management towards failed control cost. Based on the performance of American Apparel it represents net income loss before income taxes, interest expenses and depreciation. Information is provided in the form of adjusted EBITDA to access the assets to generate cash sufficient to pay interest but the situation on financial statements was uncertain.

b) In 2013 American apparel began to implement labour cost reduction for its distribution activities. For the transaction issues associated with the new distribution centre and sales have continued for negative impact and incur additional conversion cost and it has been delayed in achieving planned out cost reductions which in turn has caused a negative impact on operating performance, financial condition and liquidity. Resulting in this American Apparel has witnessed non-cash gain of 12.9 million dollar which resulted in mark-to-market adjustment to its warrants..