Accounting Case American apparel case
Arcchit Mathur SMBA14079 Shashank Kapoor SMBA14057 Parineeta Singh SMBA14042 Sumit Ahuja SMBA14065
AMERICAN APPAREL
Key Facts •
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On 3 rd April 2014, the cash crunched American retailer, American Apparel, Inc needed to pay a huge amount of $13.4 million as interest and other debt repayments. ith the net loss of $10! million in 2013, the increase of appro"imately 400 percent as compared to a net loss of $3# million in 2012, the company has been sining deep do%n in the losses. &he company %as not been able to deli'er any profitability since 200(. In the year 2013, the net sales of the company had increased marginally, still the company ended up %ith a bigger loss than e'er before. )o %onder, the shares of the company had di'ed do%n from $1# to 0.*! cents during the same period, losing more than +0 of its share 'alue -efer to /"hibit 1. &he companys contro'ersial /O o' harney had been able to sustain the business, %ith continued borro%ing at an e"orbitant rate -as high as 1+ percent interest and additional capital. ast month, the company raised $2+.* million by selling more than !1 million shares at *0 cents each. Also renegotiated %ith the e"isting lenders. As a result, the company got some relief from the credit payments. 5o'ing for%ard, %hat actions could sa'e the company from dro%ning deep into the debt6
&he /O and founder o' harney recently stated, 7e in'ested substantially in our infrastructure in 2012 and 2013, and almost all of these pro8ects ha'e been implemented. e e"pect 2014 to be a year %here %e ret urn our full focus to e"ploiting the strength of our brand and deli'ering e"ceptional ser'ice to our retail and %holesale customers. e are committed to deli'ering a return on the in'estments %e ha'e made in our business.9
About The company •
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:ased os Angeles, alifornia American Apparel is a 'ertically integrated manufacturer, distributor, and retailer of branded fashion apparel and accessories for men, %omen, children and babies. As of ;ebruary 2+, 2014, the company had appro"imately 10,000 employees and operated 24! retail stores in 20 countries. &he company has business in the il, erland, Israel, Australia, apan, =outh ?orea, and hina. &he company operates an eBcommerce %ebsite %ith 12 different locali>ed online stores in se'en languages that ser'e customers from 30 countries %orld%ide. &he company has four operating segmentsC holesale, <.=. etail, anada, and International. 7American Apparel D9 is a registered trademar of American Apparel -<=A, . <.=. =ince 200!, the company is listed on the )E=/ -)e% Eor stoc /"change. &he apparel manufacturing operations has spread out of +00,000 sFuare foot facilities in the %arehouse district of do%nto%n os Angeles, alifornia.
Business Model •
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American ApparelGs mission is to mae great Fuality clothing %ithout using cheap Hs%eatshopH labor and e"ploiting %orers. &o see profits through inno'ation not e"ploitation. :y pursuing efficiencies in management and production, their aim %as to demonstrate that the use of e"ploitati'e labor tactics is not only unnecessary but counterproducti'e.
Go!th "tate#y •
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&he company is focused on gro%ing by increasing the number of stores, building good online sales platform, bringing ne% merchandise for the users and creating strong Information systems to support the operations of the company. &he company has the ore :usiness =trengths of uniFue designs, ad'ertising promotions and branding, Fuality products and broad appeal to consumers of 'arious demographics.
About CE$ % Founde o' harney founded the garment business in 1((+. &he /rnst Eoung named o' harney /ntrepreneur of the Eear in 2004. &he Apparel 5aga>ine, the ;ashion Industry @uild and the Ad =pecialty Industry all separately deemed him H5an of the Eear.H harney %as included in the os Angeles &imes H100 5ost Jo%erful Jeople of =outhern aliforniaH list and etails 5aga>ine inducted him to their HJo%er *09. In the first annual os Angeles ;ashion A%ards, harney %as recogni>ed for /"cellence in 5areting. In the year 200+, independent research report placed American Apparel as the &op &rendsetting :rand, second only to )ie. In contrast to his achie'ements, he had been no%n for the use of se"ually proacti'e ad'ertisements for the mareting of its products. o' harney has been associated %ith se'eral contro'ersial la%suits, although none %as pro'ed in the court.
APPAREL IN&'"TR(
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&he apparel industry %as highly fragmented and highly 'olatile. &he sales gro%th o'er the last fi'e years had been eroded -B0.* A@ domestically and 1.4 A@ o'erall. &he industry in'entory le'els or stoc le'els had been steadily increasing o'er the last fi'e years, &he international sales had gro%n by a A@ of 11.3 o'er the same period. &he A@ for total sales -combining international and domestic sales o'er this period %as about 1.!. In the apparel industry, the American Apparel %as facing stiff competition from the @ap,
Past Pesent and Futue (ea )**+
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&ill 200+, the aggressi'e e"pansion of the company, the e"plicit use of se" proacti'e ad'ertising and 'ery good Fuality products, paid %ell in terms of the profitability of the company. &he company created a 'ery strong brand recognition, and its products ha'e been able to appeal the young %ith its trendBsetting designs and harneys uniFue fashion sense. In 200+, the companys /O %as named Hetailer of the EearH at the 1*th Annual 5ichael A%ards for the ;ashion Industry, &he company gre% from 14# stores in 200! to 2!0 stores in 200+, %hile e"panding on both domestic, as %ell as international stores. &he sales increased by %hooping 40 percent as compared to the pre'ious year. &he
rapid e"pansion of the stores and retail centers had put the company into the one of the fastest gro%ing company in the retail sector.
(ea )**, till )*-) • •
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&he success story continued until 200( ue to the immigration issues, the company %as reFuired to terminate 2000 American Apparel %orers from its factory, some of its %orers %ere more than a decade old, leading to the companys inability to complete orders on time and meet the demand. As a result, the production %as badly hit and resulted in stocBouts. &he operating profit decreased from $ 3! million to $3 million, a massi'e decrease of (2 in year 200(. &he companys net profit drastically fell from $ 14 million in 200+ to $1 million in 200(, a humongous do%nfall of (3. &he global recession made the reco'ery all the more difficult. ;or the first, time the companys sales declined from $**+ million to $*32 million, a do%nfall of *. &he operating income fell from $24 million to a negati'e $*0 million, a significant drop in the profitability by e"orbitant 300. &he huge loans and the interest payments further intensified the loss, resulting into a net loss of $+! million as compared to the last year loss of $3! million, an increase of 140 as compared to (3 increase last year. =hattered by the losses and lac of liFuidity, the money situation %orsened by the first Fuarter of 2011, and the company stated that it might file a protection against banruptcy under section 11. esperate for funds, the /O o' %as able to bring the in'estors .Ko%e'er, the loans taen by the company %ere e"cessi'ely costly. ue to the significant efforts, the net loss restrained to $3( million in 2011 as compared to $+# million last year. In year 2012, the company undertoo efforts to upgrade the production forecasting and allocation system, %hich %ould enhance the ogistic, demand planning solution. On the other hand, it continued building the stores. &he total net loss decreased from $3( million to $3# million in the year 2012. &he sales also started building up. &he net sales of the company increased from $*4# million to !1# million in 2012.
(ea )*-. &he %orst of all the years 2013 &he company implemented t%o important strategic initiati'es B in'entory management and the ne% distribution center. &he company also completed its ;I -adioBfreFuency identification system and implementation of oracle, A&@ %eb commerce application, for its eBcommerce platform. &he cost of goods sold increased from $2+( million to $ 313 million, crushing both net and gross margins. &he net loss increased to mammoth $10! million, %ith the sales gro%n at a marginal three percentage, from $!1# million to $!33 million. Already pressuri>ed by the rocet high interest rates and debt repayments, the company has cash of only eight million on 31 ec. &he increased cost a"ed the cash from operations by %hopping $3! million into negati'e cash from operations of $12 million
(ea )*-/ and Ahead •
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2014 the net sales had decreased to $13#.1 million, due to drop off both comparable store as %ell as %holesales net sales. &he gross profit reduced to $#2.0 million in the first Fuarter as compared to last years first Fuarter results. In the first Fuarter annual report of 2014, the company reassured the in'estors of its commitment to reduce the cost by bringing do%n the manufacturing as %ell as administrati'e costs. &his year the company had also put halt on e"cessi'e capital e"penditure and %ould be more focused to remo'e the inefficiencies associated %ith the production process %hile, building up the producti'ity for a profitable future.
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o' harney, /O of American Apparel indicatedC He are encouraged by our first Fuarter performance %ith our achie'ed results ahead of our 2014 business plan. &he results of our cost control efforts are being seen in all areas of the business, and %e are no% fully focused on measures to impro'e top line performance.H =ho%ing the %ay for%ard, he said, 7Its -American Apparel 24# stores could be 20 more producti'e %ith the right t%easL the online business could double, %holesale could gro% by 20 to 30.9
Recent 0appenin#s •
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On 2*th 5arch 2014, in order to comply %ith the terms and conditions of debt renegotiation, the company raised more shares capital. /O ohannes 5inho oth, of ;i'e&, a MurichBbased firm in'ested an enormous sum, by purchasing $2! million of the shares and become the second largest outside shareholder, after /O o' harney. oth belie'ed that the company is grossly under'alued. oth on his in'estment in American apparel stated, 7e cannot belie'e ho% cheap it is,9 oth said. /specially since, 7its a lot further in the restructuring process than people thin.9 7Kes a 'isionary,9 7o' %ants to mae it his life goal to mae American Apparel into a successful company. I ha'e a 'ery positi'e 'ie% on him.9 Although the raising of funds ga'e some time to the company and enabled to pay off the debt, the danger of default had 8ust subsided and not gone a%ay %ith the ne"t big interest payment due in April 2014. On April 14, 2014, the debtBridden company had one more blo%. :ased on an internal enFuiry, the board accused and dismissed /O o' harney of 7%illful misconduct,9 based on the se" assaults and se"ual harassment cases. &he board clarified that the firing %as based on the personal misconduct than the professional one. &he firing came at a time %hen the company is suffocating under the debt burden. An interest payment of $14 million had to be paid, by the end of April 2014. &he analyst %ere 'ie%ing this e'ent as the last nail in the coffin. ould the o' charleys e"it from the company trigger the default that the company has been a'oiding for long6 hat %ere the performance areas that dragged the company do%n in the debt6 Kas the American apparel lost it appeal, and the /O o' harney lost his charm6 1Please e2e to the e3cel sheets 2o hints4
RATI$ ANAL("I" AN& FIN&ING"
Acti5ity Ratio6
Jrofit depends on rate of turno'er and the net margin. Acti'ity atios, also termed as
Jerformance ratios or &urno'er ratios, 8udge ho% %ell the facilities at the disposal of the enterprise are being utili>ed. In other %ords, these ratios measure the effecti'eness %ith %hich a concern uses resources at its disposal. Acti'ity ratios are used to measure the relati'e efficiency of a firm based on its use of its assets, le'erage or other such balance sheet items. &hese ratios are important in determining %hether a companyGs management is doing a good enough 8ob of generating re'enues, cash, etc. from its resources. &hey comprise of ebtors turno'er ratio and Asset turno'er ratio.
ACTI8IT ( RATI$"
(eas67
2013
2012
2011
2010
200(
In5entoy Tuno5e
3.!(
3.43
3.01
3.34
3.+!
Recei5ables Tuno5e
2(.04
2+.12
2(.0(
31.#3
33.*1
9o:in# Capital Tuno5e
10.(2
+.22
12.1(
+.!1
*.4#
Total Asset Tuno5e
1.(2
1.+(
1.!+
1.!3
1.!(
Findin#s; •
In'entory &urno'er is slightly higher-3.!( as compared to pre'ious years i.e. in 2011B2013 a'erge %as 3.** as compared to last years 3.43.
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ecei'ables &urno'er is also on a higher le'el as compared to pre'ious years by 0.(2 but as compared to 200(B11 its lo%.
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oring apital &urno'er has raised 2.# compared from pre'ious year. &otal Asset &urno'er rosen a little from 1.+( to 1.(2
Co5ea#e Ratio6 A measure of a companyGs ability to meet its financial obligations. In broad terms, the higher the co'erage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders. &he trend of co'erage ratios o'er time is also studied by analysts and in'estors to ascertain the change in a companyGs financial position. ommon co'erage ratios include the interest co'erage ratio, debt ser'ice co'erage ratio and the asset co'erage ratio.
C$8ERAG E RATI$"
(eas67
2013
2012
2011
2010
200(
Cash Co5ea#e Ratio
-0.32
0.*#
0.0#
-1.3!
2.00
Inteest Co5ea#e Ratio
-0.#*
0.02
-0.#0
-2.11
1.0+
Findin#s; • •
ash o'erage atio has declined from 0.*# to -0.32 and has turned negati'e. Interest o'erage atio has declined from 0.02 to -0.#* and also had turned negati'e.
Li
LI='I&IT ( RATI$"
(eas
2013
2012
2011
2010
200(
Cuent Ratio
1.33
1.3(
1.!1
1.01
2.+#
=uic: Ratio
0.1+
0.22
0.22
0.11
0.40
Cash Ratio
0.0*
0.0+
0.0#
0.04
0.14
Findin#s; • • •
urrent atio is slightly do%n from 1.3( to 1.33 and also its lo%er then 200(B2011 a'erage of 1.(0 Nuic atio is a bit lo%er then last years 0.22 i.e. 0.1+. ash atio is also do%n to 0.0*
"ol5ency Ratio 6 A ey metric used to measure an enterprises ability to meet its debt and other obligations. &he sol'ency ratio indicates %hether a companys cash flo% is sufficient to meet its shortBterm and longBterm liabilities. &he lo%er a companyGs sol'ency ratio, the greater the probability that it %ill default on it s debt obligations. &he measure is usually calculated as follo%sC
"$L8ENC( RATI$"
(eas
2013
2012
2011
2010
200(
Total &ebt To Total Asset Ratio
1.23
0.(3
0.+*
0.##
0.*2
Lon# Tem &ebt To E
B3.22
!.*4
2.##
0.*2
0.!#
Total &ebt To E
B*.31
13.+!
*.#*
3.3#
1.0+
Findin#s; • • •
&otal ebt to &otal Asset atio has sho%n impro'ement, there is a rise of 0.30 i.e. from 0.(3 to 1.23. ong &erm ebt to /Fuity atio has gone do%n drasticall y from !.*4 to B3.22 sho%ing a decrease of (.34. &otal ebt &o /Fuity atio dipped from 13.+! to B*.31 and has turned negati'e.
Cash Pe2omance Ratio6 It focus on the cash being generated in terms of ho% much is being generated and the safety net that it pro'ides to the company. &hese ratios can gi'e users another loo at the financial health and performance of a company.
CA"0 PERF$RMANC E RATI$"
(eas
2013
2012
2011
2010
200(
Cash Retun To Re5enue
B0.02
0.04
0.00
B0.0!
0.0+
Cash Retun $n Assets
B0.04
0.0#
0.01
B0.10
0.14
Cash Retun $n E
)5;
)5;
0.0*
B0.43
0.2(
Cash Retun To Net Income
)5;
B0.!3
B0.0!
0.3+
0.!*
Findin#s; •
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ash eturn to e'enue is do%n from 0.04 to B0.02 and has turned negati'e %hich sho%s negati'e return of cash on re'enue. ash eturn on Assets has also turned negati'e from B0.04 to 0.0# %hich means cash return is not good enough on assets. ash eturn on /Fuity is also do%n. ash eturn to )et Income is continuously do%n since past 3 years.
Po2itability Ratio6 It is a measurement that help to determine the ability of a company to generate earnings in comparison to its costs and e"penses o'er a certain time period. A compny ha'ing higher profitability ratio then its competitors is considered of doing %ell in business.
PR$FITABILIT ( RATI$"
(eas
2013
2012
2011
2010
200(
Net Po2it Ma#in
B1#
B!
B#
B1!
0
Goss Po2it Ma#in
*1
*3
*4
*3
*#
Retun $n Assets
B(
0
B#
B1*
#
Retun $n E
)5;
B1!(
B+2
B11*
1
Findin#s; •
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)et Jrofit 5argin is negati'e since 4 years from 2010B2013 and is B1# in 2013 %hich sho%s declining profits. @ross Jrofit 5argin is also in diminishing trend. eturn on Assets has also turned negati'e again after 2012 to (. eturn on /Fuity is continuously do%n since past 3 years %hich means in'estors are not getting positi'e return on their in'estments.
CA"0 FL$9 "TATEMENT A cash 2lo! statement , also no%n as statement of cash 2lo!s, is a financial statement that sho%s ho% changes in balance sheet accounts and income affect cash and cash eFui'alents, and breas the analysis do%n to operating, in'esting and financing acti'ities.
Cash flow from operating activities
An accounting item indicating the money a company brings in from ongoing, regular business acti'ities, such as manufacturing and selling goods or pro'iding a ser'ice. ash flo% from operating acti'ities does not include longBterm capital or in'estment costs. It does include earnings before interest and ta"es plus depreciation minus ta"es. Analysis6 Cash 2lo! 2om opeatin# acti5ities 2o )**,6)*-.
:y analy>ing the cash flo% from operating acti'ities, there has been a negati'e trend in maintaining operating cash flo%. In 200(, 2011 and 2012 there %as a positi'e net cash flo% and negati'e in 2010 and 2013, %hich sho%s a 'ery high fluctuating trend. &he reason of this negati'ity in net cash flo% from operating acti'ities is the negati'e balance of account recei'ablesL reason being the clients %ho has taen ser'ices from the company has not paid for it till no%. &here is a negati'e net cash flo% in 2013, %hich is mainly due to increase in deferred ta"es payments in comparison to last 4 years.
Cash flow from Investing Activities-
An item on the cash flo% statement that reports the aggregate change in a companyGs cash position resulting from any gains -or losses from in'estments in the financial marets and operating subsidiaries, and changes resulting from amounts spent on in'estments in capital assets such as plant and eFuipment. Analysis6 Cash 2lo! 2om in5estin# acti5ities 2o )**,6)*-.
:y analy>ing the cash flo% from in'esting acti'ities, its been noticed that there has been a continuous negati'e cash flo%. 5ain reason behind this negati'e cash flo% from in'estment is the continuous increase in capital e"penditures by purchasing of fi"ed assets. In past * years company %as ha'ing a lo% liFuidity ratio and lo% cash reser'es still the management is in'esting hea'y amount of cash in buying fi"ed assets and increasing longBterm debts. =ince past * years they ha'e in'ested 20+(0, 1*#00, 110#0, 21!10 and 2#0*0 because %hich they maintaining negati'e cash flo% of -20+(0, -1*!!0, -10#!0, -24+*0 and -2*1*0. Cash flow from Financing Activities-
A category in a companys cash flo% statement that accounts for e"ternal acti'ities that allo% a firm to raise capital and repay in'estors, such as issuing cash di'idends, adding or changing loans or issuing more stoc. ash flo% from financing acti'ities sho%s in'estors the companys financial strength. A company that
freFuently turns to ne% debt or eFuity for cash, for e"ample, could ha'e problems if the capital marets become less liFuid. Analysis6 Cash 2lo! 2om 2inancin# acti5ities 2o )**,6)*-.
:y analy>ing the cash flo% from financing acti'ities, there has been a fluctuating trend in maintaining the cash flo%ing from all the financing acti'ities. &here has been increase in the bo%ings of the company, %hich has resulted in increased longBterm debts. &his is the reason behind the unstable financial position of the company. &here is no negati'e trend in cash flo% from financing acti'ities but the borro%ings are constantly rising.
%ash &o' (rom )i*erent Acti+ities 4$!172
45!20" "4!22$ 2"!5$9 12!72"# 2!"05
10!759# 15!662# 20!$$9# 24!$5"# 25!147#
12!5$2 4!214 25!471#
"2!"70# 2009
2010
2011
2012
201"
,et -ncrease./ecrease in %ash
201"
2012
2011
Consolidated Balance "heet Analysis
2010
2009
Ameican Appael> Inc? and "ubsidiaies
onsolidated :alance =heets &ecembe .-> 1Amounts and shaes in thousands> e3cept pe shae amounts4
)*-.
)*-)
)*--
)*-*
A""ET" C'RRENT A""ET"
ash
$+,!#!
$12,+*3
$10,2(3
$#,!*!
20,#01
22,(!2
20,(3(
1!,!++
&rade accounts recei'able, net of allo%ances of $2,22( and $2,0+* at ecember 31, 2013 and 2012, respecti'ely estricted cash Jrepaid e"penses and other current assets
B
3,#33
1*,!3!
(,*+(
#,!31
(,401
1,!(,3#+
1,#4,22(
1,+*,#!4
1,#+,0*2
Income ta"es recei'able and prepaid income ta"es
30!
*30
*,(**
4,114
eferred income ta"es, net of 'aluation allo%ance
*((
4(4
14+
!2!
)>-@>),
)>)/>.,*
)>.*>.*
)>->@.
!(,303
!#,##+
!#,43+
+*,400
2,42!
1,2!1
1,*2(
1,!(*
4!,#2#
34,#+3
2*,024
24,31+
.>..>@)
.>)+>)-)
.>)/>)-
.>)>,@*
In'entories, net
Total cuent assets
Jroperty and /Fuipment, net effered ta"es Other Assets, net T$TAL A""ET"
Fom the abo5e !e can conclude; ash has decreased from 12,+*3 to +,!#! in the year 2013. &rade ecei'ables came do%n to 20,#01 in 2013 from 22,(!2. ash restricted %as 3,#33 in the year 2012. Jrepaid /"penses increased from (,*+( to 1*,!3! in 2013. In 2013, In'entories fell from 1#422( to 1!(3#+. Income &a"es recei'ables and prepaid income ta"es fell from *30 to 30! in 2012. eferred Income ta"es increased to *((. T$TAL C'RRENT A""ET" declined to )-@), 2om ))/.,* in the yea )*-.? Jroperty and /Fuipment increased to !(,303 eferred ta"es increased to 242! Other assets increased to 4!#2# Theeby> inceasin# T$TAL A""ET" by @@/* in the yea )*-.?
Consolidated Balance "heet Analysis &ecembe .-> 1Amounts and shaes in thousands> e3cept pe shae amounts4 C'RRENT LIABILITIE"
)*-.
)*-)
)*--
)*-*
Accounts Jayable
$(1,2(1
$+2,10(
$+0,240
$#0,#(2
=hortB&erm ebt urrent Jortion of ongB&erm ebt
$4*,#*1
$!2,2*(
$*1,**!
$13(,03+
Other urrent iabilities
$24,(4#
$1#,241
$11,**4
$4,321
Total Cuent Liabilities
-->,+,
-->*,
-/.>.@*
)-/>-@-
ongB&erm ebt
$21+,(21
$112,+*!
$(+,+!+
$(+!
Other iabilities
$11,4+*
$10,!(*
$12,04!
$12,!0*
eferred iability harges
$1+,#!1
$20,(!+
$22,32#
$2*,1+4
5isc. =tocs
$0
$0
$0
$0
5inority Interest
$0
$0
$0
$0
Total Liabilities
/-->-@
.*>-)+
)>@,-
)@)>,)
$11
$11
$11
$+
$1+*,4#2
$1##,0+1
$1!!,4+!
$1*3,++1
-$2*!,424
-$1*0,12!
-$112,+*4
-$#3,*40
&reasury =toc
-$2,1*#
-$2,1*#
-$2,1*#
-$2,1*#
Other /Fuity
-$4,30!
-$2,#2*
-$3,3*!
-$3,1!+
&otal /Fuity
-$##,404
$22,0+4
$4+,130
$#*,024
Total Liabilities % E
...>@)
.)+>)-)
.)/>)-
.)>,@*
"toc: 0oldes E
ommon =tocs apital =urplus etained /arnings
Fom abo5e !e can conclude; urrent iabilities increased to 1!1(+( in 2013 from 2141*1 in 2010. And, T$TAL LIABILITIE" reached till 4111*! in 2013. 5uch higher than &O&A IA:II&I/= in 2010 i.e. 2*2(2!. T$TAL E='IT( declined o'er the years and got negati'e in the year 2013 i.e. -##,404 Theeby> inceasin# T$TAL LIABILITIE" AN& E='IT( by @@/* in the yea )*-.?
C$NCL'"I$N; Li
)*-. )*-) 1.32(0##( 1.3++4#4!*2
)*-1.!0(**#02+
)*-* )**, 1.011141!#1 2.+#1*01233
&he cuent atio is a financial ratio that measures %hether or not a firm has enough resources to pay its debts o'er the ne"t 12 months. It compares a firms current assets to its current liabilities. Acceptable current ratios 'ary from industry to industry and are generally bet%een 1.* and 3 for healthy businesses. Kere, Cuent Ratio has been declining since 200( and reached till 1.32(0##( in the year 2013 i.e. belo% 1.*.
Li
)*-.
)*-)
)*--
)*-*
)**,
1.231(20#0+
0.(32#14221
0.+*1#+04*2
0.##123342
0.*1(!+*32
&he debt to total assets ratio is an indicator of financial le'erage. It tells you the percentage of total assets that %ere financed by creditors, liabilities, debt. &he debt to total assets ratio is calculated by di'iding a corporationGs total liabilities by its total assets . Kere, T$TAL &EBT T$ T$TAL A""ET" is 1.231(20#0+, %hich means companys debts are much higher than the companys total assets.
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A measure of a companyGs financial le'erage calculated by di'iding its total liabilities by stocholdersG e
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A ratio used to define ho% easily a company could pay interest on outstanding debt. It is calculated by di'iding a companys earnings before interest and ta" -/:I& of one period by the companys interest e"penses of the same period. Kere, INTERE"T C$8ERAGE is negati'e indicating that companys interest e"penses are much higher than the companys earnings before interest and ta".
Thee2oe> from the abo'e, %e can conclude, that the companys financial position is not strong and hence it is difficult to sur'i'e in the industry.
