J. C. Penney Company, Inc. Equity Valuation and Analysis As of ...

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Below is a chart of sales manipulation diagnostics used to create previous graphsof J.C. Penney and industry competitors.Sales Manipulation DiagnosticsJCP 2002 2003 2004 2005 2006Net Sales/Cash From Sales 0.9944 1.0249 0.8153 0.9185 0.9996Net Sales/Net Account Receivables 45.882 76.334 45.603 69.559 75.676Net Sales/Inventory 6.5413 5.6356 5.8138 5.8507 5.8538Net Sales/Unearned Revenues 186.97 92.155 89.004 85.757 86.160Net Sales/Warranty Liabilities n/a n/a n/a n/a n/aKKSNet Sales/Cash From Sales 1.0270 0.9935 1.0185 1.0135 1.0263Net Sales/Net Account Receivables 9.2048 8.9397 8.4199 8.1124 n/aNet Sales/Inventory 5.6055 6.3983 6.0096 5.9896 6.0060Net Sales/Unearned Revenues n/a n/a n/a n/a 1036.2Net Sales/Warranty Liabilities n/a n/a n/a n/a n/aDDSNet Sales/Cash From Sales 1.0344 0.9810 0.8643 1.0003 0.9997Net Sales/Net Account Receivables 5.9121 6.3776 780.08 603.70 726.68Net Sales/Inventory 4.9620 4.6551 4.3441 4.1938 4.3089Net Sales/Unearned Revenues n/a n/a n/a 100.40 101.95Net Sales/Warranty Liabilities n/a n/a n/a n/a n/aSSINet Sales/Cash From Sales 0.9994 1.0254 0.9725 1.0000 1.0000Net Sales/Net Account Receivables 79.430 27.688 n/a n/a n/aNet Sales/Inventory 4.8663 3.7437 4.4172 4.7383 4.6585Net Sales/Unearned Revenues 182.40 110.47 12.076 107.52 336.99Net Sales/Warranty Liabilities n/a n/a n/a n/a n/aSMRTNet Sales/Cash From Sales 1.0108 1.0068 1.0072 1.0066 1.0068Net Sales/Net Account Receivables 286.36 320.66 249.42 133.22 147.70Net Sales/Inventory 3.4339 3.4487 3.0755 2.8501 3.1254Net Sales/Unearned Revenues n/a n/a n/a n/a n/aNet Sales/Warranty Liabilities n/a n/a n/a n/a n/a61
Expense Manipulation DiagnosticsExamining the sales performance of a company across several yearsallows analysts to identify any potential discrepancy in reporting from one yearto the next. Examining the sales performance of a company against that of itscompetitors in the industry allows analysts to check if identified anomalies areindustry wide or company specific. The following section contains expensemanipulation diagnostics for J. C. Penny, Kohl’s, Dillard’s, Stage Stores, Inc., andStein Mart, Inc.Asset Turnover43.53Asset Turnover2.521.51JCPKSSDDSSSISMRT0.502002 2003 2004 2005 2006YearAsset turnover for J. C. Penney has also maintained steady of the last fiveyears. An increase in this ratio would show a red flag indicating assets wereoverstated. As you can see, the ratio slightly increases overtime. This is not dueto a great change in assets but an increase in sales 2004 and on after the sale ofunprofitable businesses.62
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J. C. Penney Company, Inc. Equity V
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Industry AnalysisIn 1902, James Cas
Page 7 and 8:
Financial Analysis, Forecast Financ
Page 9 and 10:
Business & Industry AnalysisCompany
Page 11 and 12: Industry OverviewThe retail industr
Page 13 and 14: Five Forces ModelThe Five Forces Mo
Page 15 and 16: ConcentrationThe level of concentra
Page 17 and 18: capable of offering lower prices th
Page 19 and 20: If a firm wishes to shut down, it m
Page 21 and 22: Legal BarriersMany industries have
Page 24 and 25: These costs include issues such as
Page 26 and 27: Bargaining Power of SuppliersThe de
Page 28 and 29: The relative bargaining power of th
Page 30 and 31: Competitive StrategiesIn order to a
Page 32 and 33: Department stores have to focus on
Page 34 and 35: The Big PicturePlayers in this indu
Page 36 and 37: Lower Input CostsJ. C. Penney is at
Page 38 and 39: in the last five years. This trend
Page 40 and 41: convenient for different consumers
Page 42 and 43: transactions have been improperly s
Page 44 and 45: Penney does state in its annual rep
Page 46 and 47: Operating and Capital LeasesOperati
Page 48 and 49: Potential Accounting FlexibilityA f
Page 50 and 51: truly are. J. C. Penney, however, h
Page 52 and 53: Qualitative Analysis of DisclosureT
Page 54 and 55: we can see why targeting the strong
Page 56 and 57: manipulation diagnostics for J. C.
Page 58 and 59: Net Sales/Net Accounts ReceivableNe
Page 60 and 61: Net Sales/Unearned Revenue1200Net S
Page 64 and 65: As for the industry, all the compan
Page 66 and 67: Pension Expense/SG&APension Expense
Page 68 and 69: Below is a chart of all expense man
Page 70 and 71: discount rates in respect to pensio
Page 72 and 73: Financial Analysis, Forecast Financ
Page 74 and 75: paying off their short-term obligat
Page 76 and 77: ecause many firms in this segment o
Page 78 and 79: Penney’s inventory turnover is in
Page 80 and 81: ConclusionAnalysis through liquidit
Page 82 and 83: operating efficiency because the fi
Page 84 and 85: Return on AssetsReturn on Assets0.1
Page 86 and 87: Capital Structure AnalysisWhen look
Page 88 and 89: however, in 2006, J. C. Penney show
Page 90 and 91: Sustainable Growth RateSustainable
Page 92 and 93: average of only years 2005 and 2006
Page 94 and 95: (reported in millions)Annual Income
Page 96 and 97: We then began to look at the equity
Page 98 and 99: Common Size Balance Sheet 2002 2003
Page 100 and 101: (numbers in millions)Statement of C
Page 102 and 103: ConclusionOverall, it appears that
Page 104 and 105: Inc. We set these averages equal to
Page 106 and 107: Price to BookPPS BPS P/B IndustryAv
Page 108 and 109: Price Earnings GrowthPPS EPS PEG In
Page 110 and 111: y J. C. Penney’s EBITDA. Then we
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Regression Analysis3 Month Rate 72
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Intrinsic ValuationsIntrinsic valua
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amount in the eye’s of shareholde
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This particular stock price in our
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esidual income or converge. Future
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To find our long run return on equi
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Sensitivity AnalysisGrowth Rates0 -
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for this large difference between s
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Analyst RecommendationAfter careful
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AppendixLiquidity RatiosCurrent rat
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Capital Structure RatioDebt to equi
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SUMMARY OUTPUT3 Month Regression72
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SUMMARY OUTPUT6 Month Regression72
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SUMMARY OUTPUT2 Year Regression72 M
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SUMMARY OUTPUT5 Year Regression72 M
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SUMMARY OUTPUT10 Year Regression72
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Cost of Equity 0.1361Estimated Pric
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Discount Dividends Model0 1 2 3 4 5
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Residual Income Model WACC(AT) 0.07
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Z-Score AnalysisZ-Score=1.21.43.320
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