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

a MasterCard or VISA, allowing J. C. Penney to recognize revenues immediatelyand keeps its accounts receivable minimized.Inventory TurnoverInventory Turnover9876543JCPKSSDDSSSISMRT2102002 2003 2004 2005 2006YearInventory turnover is the ratio between cost of goods sold and itsinventory. Inventory turnover measures how many times a company sells andreplaces its inventory throughout the year. A low ratio suggests poor sales andexcess inventory. A high ratio implies strong sales or possibly insufficientinventory levels. Because inventory ties up money that could be used for otherinvestment, it is important for a firm to maintain a steady turnover of itsinventory.J. C. Penney has averaged a ratio of 3.5:1 over the past five years. Inother words, the company turns its inventory almost four times a year, orapproximately once every 3 ½ months. This means that cash is tied up ininventory for almost 3 ½ months. Although this seems like a long time, it is verycommon in the department and discount store segment of the retail industry dueto the seasonality of the product lines sold in these stores. In other words, J. C.76