J. C. Penney: An American Retail Company

1508 Words4 Pages

J.C. Penney is an American retail company and it has been in this industry for over 100 years. Currently, the company is in a decline stage and the management is looking for a solution for the problems that have been developed over the years. The company is losing cash, having negative net income, and excess inventory which brings the assumption that the company will run out of cash by the end of 2013. The management has not been controlling inventory and that is one of the reasons why the company is in this stage. Chief Executive Officers came up with different discount strategies in order to sell off the inventory, but it did not seem that any of them worked. Stock price is at $20 which is significantly lower than it was three years ago. …show more content…

During the last eight quarter, debt to assets ratio increased from 62% to 68% and the reason for that is because the total assets have decreased from $12.3 billion to $9.7 billion. Total liabilities have decreased as well from $7.6 billion to $6.6 billion. Even though both assets and liabilities decreased, assets decreased by much high percentage than liabilities did. For the last six quarters, the times interest earned ratio was negative which means that the EBIT was negative. Along with that, the EBIT is decline more and more every quarter. During the third quarter in 2011, EBIT was -$171 million and during the fourth quarter in 2012, it was -$745 million. Overall, both liquid and leverage ratios indicate the financial health of the company is declining. Company is losing assets (mostly cash) and they are not as liquid as they used to be. The assumption is that the company will be out of cash by the end of 2013. Cash conversion cycle shows the amount of time that company needs to receive payment for its products. JC Penney’s cash conversion cycle has decreased from 19.3 to -8.23 in the span of 3 years. The reason why it decreased was because payable deferral increased from 89.47 to 104.03. The company does not have any accounts receivables and that is why the cash conversion cycle is that low. It is very common that in the retail industry, companies do not have any accounts receivables because most of the sales are paid in cash. Every company wants to have a low cash cycle and JC Penney has achieved

Open Document