Question 1:
American Apparel almost declared bankruptcy in summer of 2010. It actually started declining since 2007. Their net income dropped from 15.48 million to 14.11 million in 2008. It is not quite a significantly drop compare to what happen the following two years. During 2008 to 2010, the drop was more significantly and it dropped from 14.11 million all the way to -86.32 million, they were having a net loss. If we refer to the financial statement from 2006 until present, we will see that the revenue of the company is rising but they had huge amount of expenses. They don’t have any expense on research and development, depreciation, interest expense and so on. Their expenses are mainly from selling and administrative expense. The growth of revenue couldn’t overcome the rapid growth of expenses. In this case, as the revenue increases, the expenses increase correspondingly. This is the reason why American Apparel had such a huge amount of debt.
Question 2:
In my opinion, the company should allocate the money into the research and development and marketing because American Apparel already lost most of the creditability from people and other company. They need to come up with some new design of clothing which is in the trend now to grab more people attentions. On the other hand, putting money into marketing can assist to advertise their new design of clothing in order to boost the sell. By the time they are selling new product which can also help the company to sell the inventory that is left during declining.
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