Question

Create a debt chart American Apparel Financial Analysis report Financials - Examine the company’s financial statements to assess organizational health.

A. Explain what the balance sheet, income statement, and cash flow statement reveal about how the company is functioning.

B. Calculate financial ratios and interpret what those say about the organization’s financial health. Support with specifics.

C. Identify the potential problem areas in the company as reflected in the financials.

Answer 1

A ) companies performance can be known with the help of balanceshhet, Income statement, and cashflow statement

Balancesheet :The balancesheet is one of the three fundamental financial statements and key to both financial modeling and according. The balancesheet displays the company's total assets, and how these assets are financed ,through either debt or equity it can also be referred to as a statement of net worth, a statemnet of financial position,the balancesheet is based on the fundamnetal equation

Assets = Liabilities + Equity.

On either side of balancesheet the main line items are generally classified by liquidity.More liquid accounts such as inventory,cash,tradepayables,are placed before liquid accounts such as plant,property and equipment and long term debt.The balancesheet reveals the Fixed assets on asset side and how it financed on the liability side and it also reveals the credit sales and credit purchases and cash and bank balances at the end of the year and whether any fresh issues had made dusring the year reflect equity side.

Income statement: Income statemwnt is one of the three major financial systems that all publicilh held firms are required to prepare annually. It provides a record of the companys revenue and expenses for the given period of time,and thus serves as the basic measuring sticks of profitability.in fact the income statement is often referred to as a profit and loss account with the bottom line literally revealing which result a company achieved. Along with the balancesheet and cashflow statnwt,the income statement provides important financial information to Bussiness managers,investors, lenders,and analysts.

Income statment is simply a scorecaed that summerizes the revenues and expenses of the organisation for the specific period of time and also it reveals the critical information about the operations and profitability of the Bussiness unit. In short the income statement tells how successfully a Bussiness unit is fulfilling its prime directives to generate profits.

Cashflow statement :It also referred to as statement of cashflows or fundflows statement is one of the three financial statements commonly used to gauge a company's performance and overall health.

Cash flow statement provides information about an organisations cash inflows and outflows over a specified time period.simply put, it reveals how a comapny spends it's money and where it comes from.

Cashflow statement is the best resource for testing a company's liquidity because it shows change over time rather than absolute dollar amounts at a specific point in time.its also useful in determining term viability of the company.

C ) potential Problem areas in the company are :

- some times the current liabilities are more than current assets of the company it reflect that companys current are not able to meet its short term obligation.

- cash is also less than current liabilities it does not mean the company is sick it may result due to huge investment in long borrowings

- some times company Investment in long term securities with the short term borrowings it may have huge impact on the company's working capital management.

- Most of the companies depend on the external financiers to borrow for investing in fixed assets and such borrowings have a great impact on the income statement and financial indicators

- some times Fixed assets are purchased and it may take a time to install the equipment such time shall be reduced to avoid severe impact on the company's performance

- there should be internal checks in the organisation to prevent certain frauds such as purchase fraud and thefts, in most of the company it is a severe problem as controls are absent in the organisation.