American Apparel Case Study Summary

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Free Cash Flow
The value of free cash flow has dropped significantly and is now negative over the previous year which shows that company not handling operating activities properly and it has no free cash to facilitate company’s expansion, acquisitions and making it financial unstable during difficult market times.

Analysis of Activity Ratios

Inventory Turnover
Inventory Turnover is increasing over the previous years shows that the company is not able to buy raw materials. This means that firm replenished its inventory between 3 and 4 times during the year. First it shows that company has too much inventory, so firm have to review his inventory management. Or it can show low sales, this situation is very bad because company is vulnerable
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They must hire sales people who are actually knowledgeable, personable, and helpful. American Apparel currently makes hiring, firing, and promotion decisions based on what its candidates and staffers not based on their performance
• Sideline Dov Charney:
• Charney needs to step aside and accept a non-management creative director role. He can remain in charge of the ads and the styling, but his investors should bring in experienced retail store management. If Charney agree to sell more than 3 percent of his holdings so that the company can become a takeover target if its performance doesn't improve. That plan might actually make Charney rich by increasing the value of the stock.
• It's not necessarily a bad thing for a company to have a controversial, media-friendly showman in a prominent role. The mail set back was his idea to open more than 100 stores in a single year. That overexpansion, financed by massive debt at what proved to be the height of a real estate bubble, is the cause of the credit issues that still threaten to cripple the company. And many of those ill-advised stores are expending lot money. Under Charney, the company has suffered, because his judgment, again and again, has proven to be disastrously

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