Question

EXHIBIT 3: AMERICAN APPAREL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET, 2008–2013

	December 31,
(Amounts and shares in thousands, except per share amounts)	2013	2012	2011	2010	2009	2008
ASSETS
CURRENT ASSETS
Cash	$ 8,676	$ 12,853	$ 10,293	$ 7,656	$ 9,046	$ 11,368
Trade accounts receivable	20,701	22,962	20,939	16,688	16,907	16,439
Restricted cash	-	3,733
Prepaid expenses and other current assets	15,636	9,589	7,631	9,401	9,994	5,369
Inventories, net	169,378	174,229	185,764	178,052	141,235	148,154
Income taxes receivable and prepaid income taxes	306	530	5,955	4,114	4,494	604
Deferred income taxes, net of valuation allowance	599	494	148	626	4,627	3,935
Total current assets	215,296	224,390	230,730	216,537	186,303	185,869
Property and equipment, net	69,303	67,778	67,438	85,400	103,310	112,408
Deffered taxes	2,426	1,261	1,529	1,695	12,033	10,137
Other assets, net	46,727	34,783	25,024	24,318	25,933	25,195
TOTAL ASSETS	$ 333,752	$ 328,212	$ 324,721	$ 327,950	$ 327,579	$ 333,609
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Cash overdraft	$ 3,993	$-	$ 1,921	$ 3,328	$ 3,741	$ 2,413
Revolving credit facilities and current portion of long-term
debt	44,042	60,556	50,375	138,478	6,346	34,318
Accounts payable	38,290	38,160	33,920	31,534	19,705	32,731
Accrued expenses and other current liabilities	50,018	41,516	43,725	39,028	30,573	22,140
Fair value of warrant liability	20,954	17,241	9,633	993	2,608	8,582
Income taxes payable	1,742	2,137	2,445	230
Deferred income tax liability, current	1,241	296	150	-
Current portion of capital lease obligations	1,709	1,703	1,181	560	1,907	2,616
Total current liabilities	161,989	161,609	143,350	214,151	64,880	102,800
LONG-TERM DEBT, net of unamortized discount of $5,779 and
$27,929 at December 31, 2013 and 2012, respectively	213,468	110,012	97,142	444
Subordinated notes payble to related party	5,453	2,844	-	4,611	65,997	67,050
Capital lease obligations, net of current portion			1,726	542	4,355	3,292
Deferred tax liability	536	262	96	260	1,020	1,986
Deferred rent, net of current portion	18,225	20,706	22,231	24,924	22,052	16,011
Other long-term liabilities	11,485	10,695	12,046	7,994	11,934	6,058
Total Long -Term Liabilites	249,167	144,519	133,241	38,775	105,358	94,397
TOTAL LIABILITIES	411,156	306,128	276,591	252,926	$ 170,238	$ 197,197
STOCKHOLDERS' (DEFICIT) EQUITY
Shares outstanding at December 31, 2012	11	11	11	8	7	7
Additional paid-in capital	185,472	177,081	166,486	153,881	150,449	131,252
Accumulated other comprehensive loss	(4,306)	(2,725)	(3,356)	(3,168)	(2,083)	(2,703)
Accumulated deficit	(256,424)	(150,126)	(112,854)	(73,540)	19,012	17,900
Less: Treasury stock, 304 shares at cost	(2,157)	(2,157)	(2,157)	(2,157)	(10,044)	(10,044)
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY	(77,404)	22,084	48,130	75,024	157,341	136,412
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	$ 333,752	$ 328,212	$ 324,721	$ 327,950	$ 327,579	$ 333,609

Years Ended December 31 2012 2009 $ 633,941 $617,310S 547,336532,989 558,775 238,863 319,912 198,518 93,636 3,343 24,415 22,627 Net sales Cost of sales Gross profit Selling expenses General and administrative expenses Retail store impairment (Loss) income from operations Interest expense Foreign currency transaction loss Unrealized loss (gain) on change in fair value of warrants and purchase rights Loss (gain) on extinguishment of debt Other expense (income) Loss before income taxes Income tax provision Net loss Basic and diluted loss per share Weighted average basic and diluted shares outstanding Net loss (from above) Other comprehensive (oss) income item Foreign currency translation, net of tax Other comprehensive (oss) income, net of tax 313,056 320,885 241,683 106,957 289,927 327,383 227,447 97,327 1,647 962 41,559 120 252,436 294,900 209,841 104,085 4,267 (23,293) 33,167 1.679 253,080 279,909 218,198 103,167 8,597 (50,053) 23,752 (686) 1,540 (29,295) 39,286 (2,920) 4,126 (11,588) 204 (104.527) (33,459) (23,467) 993 (220) 4,928 39 (37,593) 1,771 12,164 1,721 (39,314) (86,315) $ (106,298) S (37,272) $ $ (0.96) $ (1.21) S (1.21) $ 71,626 0.01 71,026 1,112 105,980 $ (106,298) (37,272) 631 631 110,326 92,599 (39,314) (86,315) (188) 39 (1,085) (1,085) 87,400) $ 620 620 1,732 hensive loss $ (107,879) $ (36,641) $

Use the information above calcuate the following financial ratios.

Current ratio:

Debt to Asset Ratio (Debt Ratio)

Inventory Turnover

Return on Sales (Profit Margin)

Answer 1

For the year 2013

Current ratio= Current assets/current liabilities

= 215296/161989

=1.33

Debt to Asset Ratio (Debt Ratio)

=Total debt/ Total assets

= 411156/333752

=1.23

Inventory Turnover= Cost of goods sold / Average inventory

= 313056/ ((169378+174229)/2)

=1.82

Return on Sales (Profit Margin)= Net Income/Sales

= -106298/633941

=-16.77%

Answer 2

1…	Most Current Year(Dec. 2013)	% Chg (+/–)	Previous Year(Dec. 2012)	2… Analysis
Current Assets	215,296	-4.05%	224,390	Mainly due to decrease in inventory & cash
Total Assets	333752	1.69%	328212	Increase in other assets followed by Plant&equipment
Current Liabilities	161,989	0.24%	161,609	Quantum almost same in total,with compensating increases & decreases in its components.
Total Debt	249,167	72.41%	144,519	Mainly due to increase in long-term debt
Sales/Revenue	633941	2.69%	617310	Increase in revenue is a positive change that is good for the company
Cost of Goods Sold	313056	7.98%	289927	COGS has also increased as a % of sales from 47% in 2012 to 49% in 2013. Even though the increase is very small, it indicates rising cost to produce the items that are sold
Inventory	169,378	-2.78%	174,229	Decrease in inventory --may be due to more goods sold
Net Income/Loss	-106298	185.20%	-37272	Loss has increased indicating operational deficiency

3…			Analysis
Current Ratio= Total Current assets/Total current liabilities	215296/161989=	1.33	Below the normal ratio level of 2--indicating that the company's liquidity position-ie. Capacity to meet its immediate obligations is not satisfactory.
Debt to Asset Ratio (Debt Ratio)=Total long-term liabilities/Total assets	249167/333752=	75%	Indicates that assets are funded to the extent of 75% by long-term debt & balance by internally generated/own funds.
Inventory Turnover= COGS/Av.Inventory	313056/((174229+169378)/2)=	1.82	Inventory turns over at the rate of 1.82 times, ie. Once in (365/1.82= )200 days ,it is converted to sales .
Return on Sales (Profit Margin)=Net profit/Net sales	-106298/633941=	-16.77%	The company is making a loss to the extent of 16.77% of sales revenue-- every $ 1 of sales, costs the company 1.1677