Question

IN 200 WORDS American Apparel: Drowning in Debt? create a chart. Please type

Calculate the current ratio, debt ratio, profit margin, and inventory turnover of the company.

• Explain what each calculated ratio tells you about how well (or poorly) the company is performing.

Answer 1

Current Ratio (Assets divided by Liabilities = Current Ratio)

333,752/411,156= .081

Debt Ratio (total liabilities by total assets)

411,156/333,752=1.23

Profit Margin (divide gross profit by revenue)

-$106298 / $633941 =-.16

Inventory Turnover(cost of goods sold divided by the average inventory)

313,056/169,378=1.84

American Apparel is not in good shape. Their current ratio is .81; this puts a limitation on their capability to pay their obligations. Their inventory turnover is 1.84 which means that they are not very efficient and this can decrease on investors. Based on their profit margin, they are not generating enough sales per dollar; -.16 for every dollar spent. The company has a high debt ratio of 1.23, which indicates financial risks. Based on the calculations, I would say that American apparel is not a good company for investment.