In today's world of competitive business, you need to spend money to make money. It is unrealistic to hope to make a substantial profit sitting by idly making conservative decisions. With its cash, Lululemon Athletica can either purchase more inventory which will in turn bring in more revenue or play it safe and hold on to the money in case of emergency. If they choose to do the later, the company would lose out on potential gains that would have arisen should they have invested their money in more stock. Being the popular company that Lululemon Athletica is today, they should not have any problem selling off their stock. I am all for spending more money on inventory.
Tuesday, May 3, 2011
Monday, May 2, 2011
American Apparel Case Study - 2011
Reviewing the available financial statements from 2007-present, as well as past articles, when did the company start declining? And where?
Even seemingly thriving and “profitable” companies can occasionally fail. Many companies are forced to declare bankruptcy when they do not have the cash to meet their everyday expenses. Recall that net or gross income is calculated by subtracting the total expenses from the total revenue. In the case of American Apparel, their revenue remained relatively stable in the years of 2008, 2009, and 2010. However, beginning in 2008; expenses incurred by American Apparel began to outpace the rate of growth experienced by its revenue. As a result, the company suffered greatly reduced income and eventually a substantial net loss of $86.32 million in 2010. Liquidity of assets is a crucial point to many businesses. It does not matter how profitable your company is; the bottom line is that if you don’t have enough cash to quickly cover the needs of your operations, creditors will be waiting at your door to tear you to bits.
Take a look at the recent financial statements (cash flow statement in particular) – with 14 million injected into the company right away, how should the company allocate this money? Into which activities? And why?
As of 2010, American Apparel is receiving most of its cash flow from financing activities. Operating activities, the bread and butter of clothing companies such as American Apparel, suffered a net negative outflow of in excess of $32.0 million. In recent years, American Apparel has earned large amounts of money through the selling of their merchandise. The negative outflow of cash regarding operating activities seems to suggest that consumers are no longer interested in purchasing products of American Apparel. There is a lot that a company can do with a cash injection of $14.0 million. In my opinion, American Apparel should use this money to develop newer products that customers feel inclined to buy.
website from which I got financial statements of American Apparel
Saturday, April 9, 2011
Petrobank Energy and Resources Ltd.
Summary:
Petrobank Energy and Resources Ltd. (TSX:PBG) has reported in the March of 2011 lower than expected earnings for the fourth quarter. Net income experienced a 94% drop from the same quarter the previous year. Income figures from continuing operations fell from $20.7 million to $1.3 million. Profits of 22 cents per share last year have plummeted to a miniscule cent per. Recall that net income is the result of subtracting the expenses from the revenue. Petrobank’s quarterly revenue fell from $276.2 million to $258.4 million. During this quarter; Petrobank, owner of 59% of PetroBakken Energy Ltd. (TSX:PBN), which focuses on oil pools in Saskatchewan and Alberta, stated that they increased their spending on their Western oil projects. Capital expenditures were up to $300.0 million from $192.8 million. These investments would be displayed under the investment portion of a cash flow statement. The major drop in net income this quarter can be credited to the major increase in investing activities.
Connections:
My article relates to Chapter 5 in the text as it connects to the concept of cash flow. Cash flow problems arise when a company does not have enough cash to meet its daily needs. There are many reasons as to why cash flow problems occur with the main ones being a lack of start-up capitalization, a long cash conversion cycle, or it can be the result of a large portion of the company’s cash being tied up in inventory and assets. Depending on their cause, there are various ways in which cash flow problems can be resolved. Petrobank may be at a increased risk to run into cash flow problems in the near future seeing as their revenue has dropped (reduced cash inflow) while at the same time expenses have risen (increased cash outflow).
Reflection:
The sharp drop in quarterly net income is more than likely a short-term phenomenon. As I have said before, net income is calculated by subtracting expenses from revenue. The reason behind this drop is the fact that Petrobank experienced a slight revenue drop of approximately 7% but more importantly expenditures have gone up nearly 60%. The increase in expenses is the result of increased investment in the company’s western Canadian oil projects. The income statement and net income figure can be quite deceptive as they merely provide a “snapshot” of the performance of a company. Over the years, many companies with positive net income figures have gone bankrupt because they did not have enough money to go around. The cash flow statement helps paint a more complete picture of the “health” of a company. The reason why net income is going down for Petrobank is because they are increasing their investment in the company’s oil projects in Alberta and Saskatchewan. These projects will bring in increased revenue in the future. Stockholders need not worry; you have to spend money to make money.
Thursday, January 20, 2011
The Sky is the Limit
http://www.marketwatch.com/story/apple-shares-rise-on-strong-results-2011-01-19?reflink=MW_news_stmp
Summary:
With the recent release of the iPhone4 and the iPad, demand for apple products have remained as high as ever. As a result, Apple share prices have recently skyrocketed. On January 18, 2011; Apple has reported an astonishing 78% surge in income for their December quarter. Apple probably benefited from the trend of increased sales during the hectic holiday season as many people rushed to purchase Apple products for their loved ones. Nevertheless, a 78% growth in net income for any company is significant. Apple does not show signs of slowing down and remains a great investment opportunity for the future.
Connections:
My article relates to Chapter 3 in the text as it is connected to the concepts of net income and by extension retained earnings. Net income is calculated from subtracting the total expenses from the total revenues. The net income generated by the company is than transferred to the retained earnings account and is divided and distributed to investors in the form of dividends. Apple is able to generate large amounts of income as they dominate the MP3, cell phone, and tablet computer markets. It cost just about the same to produce an apple product compared to how much it cost to produce a similar product of a different brand. However, people are willing to pay perhaps four times as much to get an Apple product. Why? It is seen as “cool” to be in the possession of Apple merchandise today.
Reflection:
I believe it is the ideal time for investors to invest in Apple. Normally the saying is buy low, sell high. Apple shares are currently trading for approximately $332 a piece. For the most part, it is frowned upon to buy into a company when the stock prices are already so high but I will make an exception for Apple. Big as Apple already is, the company just does not show any sign of slowing down. Apple is a big company with even bigger potential. With each new product launch, hundreds of people line up all night in an attempt to purchase the new product. The popularity of Apple products will not die down anytime soon. iPods, iPhones, and even the controversial iPad dominate their respective markets. The growth of this company will continue well into the future. The numbers speak for themselves. Ladies and gentlemen, it is time to invest in Apple!
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