American Apparel Case Study of 2011

The clothing company American Apparel began its decline in 2008 and has only begun to sink in deeper into debt since then. Their largest current liability lies under the account “Current Port. Of LT Debt/Capital Leases” where it shows that a debt of $369,300 from 2008 rose into $1,394,000 in 2010. Some of the reasons that are the cause this great financial debt and American Apparel’s overall growing state of bankruptcy could be:  the rise in cotton prices for the making of their cotton clothing, their mid-priced basics that may be overpriced to some due to the long recession, and not to mention the fact that fashion itself isn’t such a big thing when you’re short of cash from recession. American Apparel also expanded their stores to over 100 in the last few years, nearing 280 stores in total, so perhaps having expanded too greatly in such short years also added to their struggle with cash and income. CEO Dov Charney himself blames the American government for removing over 1,500 of his employees for not having proper immigration documents, especially when those employees haven’t even left United States after being forced to quit American Apparel.

I think that the $14 million would be best put to use in appealing to customers, especially because of all the sexual scandals surrounding Dov Charney, right now American Appeal really needs to do better with the media than its CEO. Better ads than near-nudes like continually promoting the fact that all the clothing they make are made in America and not by sweat-shop labourers will always be a nice incentive for those who are looking at American Appeal’s current type of suggestive picture-ads and shaking their heads. That is but one of the possibilities of use the $14 million could be put to in commercializing to the public. 

Lululemon Inventory Crisis: Good or Bad?

Article: http://business.financialpost.com/2011/03/17/lululemon-drops-on-cost-inventory-pressures/
Lululemon's Cash Flow Statement: http://ca.hotstocked.com/companies/l/lululemon-athletica-inc-LLL-cash-flow-888.html

Summary:
The retailer company known as Lululemon sells yoga and running-wear materials. For their fourth period that has yet to end, Lululemon discovers that they are short of inventory due to an incredible jump in sales. This period has exceeded analyst expectations. Their profit for this quarter has doubled to a $55million and gone up 53% in revenue to the value of $245.4million. Due to such great demands, Lululemon has paid more for goods to be flown in. The cause of this sudden increase in sales may be because of our economy’s post-recession recovery where many people are finding themselves a little extra money to spend. Part of flying in the new goods also partook in negotiating agreements with multiple factories in Asia to uphold the sale needs. Undoubtedly, such profits will bring up the values of Lululemon’s shares in the stock market. To further expand their company, Lululemon is also planning on opening six new North American stores for this quarter. Lululemon is working to be more internationally known, such as becoming more aware online. So far, its’ online division has reeled a good 10% of their overall revenue. The company plans on creating options for country-specific selections and improving shipping internationally. Currently, Lululemon has a total of 137 stores already open in North America and Australia.

Connection:
The first connection is found in Lululemon’s quarterly cash flow statement of January 2011, under operating activities. In their CFS, they have a “Decrease in Inventories” account of $7,956,000. A decrease in inventory means an increase in cash flow because Lululemon has sold the items in exchange for cash. Lululemon’s end cash for the January quarter is $316,365 and will most likely rise to a larger sum for the end of this current quarter. However, that value will be unknown until the quarter ends.
My second connection pertains to the six new North American stores that Lululemon plans on opening this quarter. I do not have numbers to provide because the quarter has not yet ended, but once it has, Lululemon’s CFS for the account “Purchase of Property, Plant, Equipment” under investing activities will increase compared to the previous quarter ended. It is an increase because the stores count as property bought, and will result in a decrease of cash flow because cash has to be exchanged for these properties.

Reflection:

I think that Lululemon will be successful in Canada as long as the economy does not fall drastically. However, for United States and Australia, I am unsure because I do not live or shop in either countries. On the other hand, from blogging on this article, I would not be surprised to hear more about Lululemon in the future as the company continues to grow. With such demanding sales, there should be no problem in making sure their company is heard and known international-wide. They have nice numbers in profit and revenue each quarter, growing stock price values, as well as investing with the right idea: expansion for Lululemon. Perhaps I will considering checking their clothing brand the next time I go shopping due to their popularity.

Will Apple's Outstanding Income Be Shaken By The Absence of Job?

Links:
http://www.financialpost.com/related/topics/Apple+without+Jobs/4123266/story.html
http://www.financialpost.com/related/topics/Jobs+health+overshadows+Apple+earnings+today/4124760/story.html
http://www.financialpost.com/news/technology/Apples+earnings+outshine+Jobs+absence/4128629/story.html

Apple's Financial Statement:
http://www.apple.com/investor/

Summary:
On January 17th, Apple's Chief Executive's leave of absence was made known to the world. Steve Job requested to take time off of his work due to medical health concerns, and in that, another concern has risen. Steve Job is [to some people] Apple itself. He does more than his part for this popular company and often takes part in all aspects of creation in its products. Because of this, will the shares for Apple drop like it did the last time he took a leave of absence? Worse yet, Job has not provided any information or date on his return to the beloved company. All of that may have a huge effect on Apple's future, but so far, they have been doing extremely well. Mr.Cook, who will be stepping in for Job, has proved to be a reliable pair of hands for all the other times Job has taken a leave of absence. For the company itself, Apple has done gloriously with reaping in the money and shareholders should be pleased. Apple brought in an astounding sum of US$26.74-billion in the quarterly ending of Dec.25, 2010 which is a jump of 71% from exactly a year ago of US$15.68-billion. It sold 16.24 million iPhones despite being in short supply as well as 4.13 million Macs because of a high demand for Apple's lovely thin Macbook Air computers. iPod Touch has also accounted for more than 50% of the all the iPod sales. Apple's success in the technology-filled world has been noted globally with the iPhone, Mac computers, and having created the tablet computing market itself with the introduction of the iPad. Hopefully the jump of 4% in shares bought after Apple announced it's earnings will continue to increase rather than decrease with the absence of Steve Job.

Connection:
The first connection I made from Chapter 3 to this article is the earnings per share. The earnings per share is the amount of income earned in relation to the number of common shares held by the owners. To calculate the earnings per share, divide the income by the number of common shares outstanding, in a period. An example can be found in Apple's financial statement for the three months ended of December 25, 2010. Their net income of $6,004 (in millions) was divided by their weighted-average shares outstanding of 919,294 (in mils) producing the basic earnings per share of $6,531.
The second connection regards the gross margin which is "sales or service revenues" subtracted by the "cost of goods or services sold". In Apple's financial statement for the three months ended of December 25, 2010, their accounts are name differently, "net sales" and "cost of sales", but still produces a gross margin. Apple has $26,741 (in mils) from net sales, $16,433 (in mils) from cost of sales, and a gross margin of $10,298 (in mils) for the three months ended of December 25, 2010.

Reflection:
Looking from the consumer's point of view, I would not let the absence of Steve Job defer me from buying Apple's latest products until his (unknown) return, for a safer or better products guarantee. As a shareholder investor, I would also not let Job's leave keep me from buying stocks in Apple. My reasons for this is because it has not been the first that that Job has taken long periods of time off work. The company still fared well during those times despite some drops in stocks. On top of that, Apple has been showing very satisfying results since the release of it's popular iPad. The iPad is not only new to North America, but to the whole world. I am sure that there will be plenty more versions in the future, each better than the previous. Therefore, the iPad itself will be in popular demand for a long while, guaranteeing the future for a steady net income. If investors share the same thoughts, then hopefully stock prices will also continue to be steady in the near-future.

Link to original article: http://www.financialpost.com/news/WestJet+initiates+dividend+share+buyback/3769738/story.html

Link for information found and used in Reflection section: http://www.flightnetwork.com/airlines/westjet/
Link for updates on share prices using Toronto Stock Exchange:
http://tmx.quotemedia.com/quote.php?qm_symbol=WJA

Summary:

          On Wednesday, November 3, 2010, WestJet Airlines Ltd. announced that they are going to add 5 cents to the new quarterly dividend. They are also going to begin a new share buyback program. By Nov. 5, 2011, the carrier claims it will buyback an estimate of 5% shares, or 7.3 million shares. The shares actually jumped up 4.38% which is the equivalent of $13.35 each, on the Toronto Stock Exchange. It is because WestJet has so carefully stockpiled its cash during the recession, that they are able to launch all these things. Additionally, since 2 years ago, WestJet hasn’t been able to increase its yields until now by 2.1%. Now that the carrier has been able to fill its planes again from the recession, WestJet is increasing some prices such as the 2^nd luggage fee. They are charging $20 per 2^nd luggage rather than continuing to uphold its previous bonus of a free 2^nd luggage. However, the carrier is reducing costs on the 3^rd and 4^th luggages from $75 to $50 each. This great revenue of cash has allowed WestJet to make a code-share agreement with Cathay Pacific Airways and first interline agreement with American Airlines. “They seemed to be very aggressively expanding capacity, and they seemed to be pursuing it as a primary goal, and shareholder value creation was taking a backseat,” David Tyerman, Canaccord Genuity analyst said. “You can see it in the stock. It hasn’t done very much all year. So this might signal a change, but I don’t expect the company to completely change.” 

Connection: 

One of the connections that can be made with this article is that WestJet practices using the “dividends declared” account. They will have a board of directors to determine when the dividends will be given and how much of it. In this article’s case, WestJet will have gone through that to declare their new quarterly dividend of 5 cents per share. “At the date of declaration, they become a legal liability of the company.” In their accounting records, it will appear as a decrease in retained earnings under the account “dividends declared.” It will also affect the cash flow statement because it is considered a financing activity when the cash is paid. 

The last connection that can be made is with “issuing shares.” As WestJet’s shares increase in price, “issuing shares” will be put into action. “One way for a company to raise money is to issue additional shares.” In this way the carrier gains more money because its revenue and income is doing well, and when the customers realize or notice this happening, they will buy more. In turn, that basically leads to a cycle of clients feeding WestJet’s income and revenue which allows WestJet to do more things with the money and potentially make bigger profits. The term that could be applied to this situation of an increase in Assets and an increase in Shareholder’s Equity (Common Shares) is “sales revenue”, because WestJet profits from the rise in share prices and people buying them.



Reflection:

On a global perspective, I can't think of anything that is strongly linked with the information provided in this article. However, I do have a comment that is somewhat involved worldwide with their decision in changing the policy on its luggage fees. Firstly, I think that regular customers of WestJet will no doubt be surprised and frown upon this change. Their decision in lowering the 3rd and 4th luggage fees may seem to balance the new fee set for a 2nd luggage, but realistically, how many people take more than 2 luggages on a flight? Considering the most common types of reasons for why customers take a flight to elsewhere, they are probably people going on vacations, visiting, and for business. Referring to these typical and generalized reasons, you are:
1. Not moving, so you don't need to pack that much.
2. Incapable of dragging more than 2 suitcases since you only have 2 arms.
3. Going for vacation; pack lighter so you can bring home souvenirs or new clothes.
4. Going for business; you won't be staying long, so why pack everything in your closet?
So those are just a few realistic reasons on why WestJet's customers wouldn't go as far as to bring 3 or more suitcases, meaning the lowered prices will not affect them. There are obviously the exceptional reasons, but this is my opinion on the majority of reasons on why people pay for a plane trip to somewhere else. Furthermore, this may be considered as a global affect because WestJet has planes that reach countries like Hong Kong, New Zealand, Australia, United Kingdoms, Germany, Rome, and France, to name a few. It is also the second largest airline in Canada and plans to be one of the top 5 most profitable airlines in the world by 2016. So basically, you can tell that there's a lot of people using WestJet to go to places.
          On a larger picture, WestJet seems to be doing very well as a company. The fact that they are adding 5 cent per share for this quarterly earning could mean that they are rewarding their customers for having "been loyal and supportive of our growh over the years," says Gregg Sarestky, WestJet chief executive. Or is that really what WestJet is doing? They could also be doing this to encourage new [possible] clients to buy shares because people can see that the carrier is doing well at the moment. At the same time, WestJet announces a buyback program so that it can entice current shareholders to give up their shares (possibly knowing [or gambling] that the company itself will have even greater profits in the near future). What I'm trying to say is, WestJet knows what it will invest in, what it will do with it's funds, and probably a good estimate of how much it will profit. As customers, we only know how much they allow us to know through their financial statements which can be somewhat on the "grey side of things." Perhaps the carrier knows that it will make a huge profit in something, and is trying to buy back it's shares so that it can re-sell for even more at a later date once WestJet has made it's "huge profit." Aside from this possibility, it could just be like Mr. Tyerman simply put it as, "We are please to announce our dividend and share buy-back program and provide our shareholders who continue to believe in our low-cost, high-value airline with an even greater return on their investment."

Wall Street's Financial Statements Of Credibility Are Questioned

Link to original article: http://www.businessweek.com/magazine/content/10_39/b4196050744977.htm

Summary :
 

      Wall Street’s credibility is being questioned because they are not providing enough information about their fixed incomes, currencies, and commodities (FICC). The last time they shared anything about their mortgage-trading revenue was in 2007. Since then, Wall Street firms’ have kept a tight grip on the financial statements being relayed to their clients. The insufficient source of FICC keeps the shareholders and potential investors from making wiser decisions about their investments. They need to know, with full transparency, what goes on with their own investments and make sure that Wall Street firms’ aren’t just taking their money and using it to pay off other failed investments of individual markets. It will definitely decrease the confidence customers may have in the results of Wall Street firms. More importantly, when they do this it adds to the huge problem that U.S.’s economy is already in, that being recession. Relating to that, the Dodd-Frank Act which is suppose to prevent future financial crises has been uneventful in helping investors gain more informative financial statements to keep from making poor investment choices.

Connection:

            The “Users of Financial Statements” are most definitely connectable to this article. Examples of internal users would be Wall Street firms’ such as Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America, and Citigroup. They are actually the five largest firms of Wall Street. The external users would be, in this case, mainly focused on the “shareholders” and “potential investors.” The shareholders pay for shares in a company, but what’s going on is that they don’t really get to know what the money is spent on or where it’s gone to because the data provided is made awry or super vague. The same thing happens for potential investors except that the firms can even go further into being hazy or shadowy about their work. They could be selling them bundles of good and bad mortgages packaged together which Wall Street firms can make even more money off of than individual clients.

            The next connection that can be made to this article is “Business Activities.” The three general activities involved are: financing, investing, and operating activities. Two examples mentioned for financing activities in this article are issuing shares and being able to pay dividends on shares to the shareholders. Wall Street firms need to be able to pay the dividends with their retained earnings, but if they sell mortgages of high value cheaply to bad customers who still can’t pay off the mortgage price the mortgages will become in high supply and low demand which drops their values.
The investing activities in this article involve sharing partial information about the sale and purchase of properties, plants, and shares from the Wall Street firms. Examples could be about the mortgage-trading revenue or how the money (funded by shareholders and investors) is managed.

The third one would be operating (day-to-day) activities, but this article is not specific on which customers and does not provide numbers in any expenses or amounts owed.

Reflection:

            I think that if firms are forced to be more transparent about financial statements or FICC provided to shareholders and potential investors, it would inadvertently help bring back the economy from recession. Even if it doesn’t, then at least they aren’t adding to recession problems.
What I see happening is that non-transparency of information from firms would increase recession, because firms would be allowed to work “in between the black and white rules of accounting standards and CAAPs.”

They could package mixed mortgages of good and bad and clients would unknowingly invest in them. Individuals could be offered places of high value with temptingly cheap or lowered mortgage prices. Who would not want to buy that? Even people who can’t afford would, which can be a problem when companies just allow them to be sold for easy profit. The more people that can afford to buy the less valuable places in general become. Sometimes the value drops so much the mortgage price which they need to pay off becomes higher than what it’s worth. Therefore many people end up not paying off the now costly mortgages or were unable to afford it in the first place, because the company made the bad decision of allowing them to buy without a thorough background check. To sum it all up, “If you cannot figure out a plan in which to pay everything off despite the great deal, do not buy or invest in it. If you are a firm or company, then you better start clearing up any shady areas of work because no one’s going to think much of your credibility in completing any deals. Lastly, either idea helps stop the recession, so why not?”