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

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ConclusionAnalysis through liquidity ratios shows that J. C. Penney is a liquid firm.J. C. Penney’s current ratio, inventory turnover, receivables turnover, andworking capital turnover are all in line with the department and discountsegment of the retail industry. J. C. Penney slightly outperforms its peers in thequick ratio, meaning it is potentially the most liquid firm evaluated in this report.Profitability AnalysisThe main objective of profitability analysis is to determine how efficientlya firm can turn a profit. Profitability analysis is comprised of six ratios: grossprofit margin, operating expense ratio, net profit margin, asset turnover, returnon assets, and return on equity. The first three ratios measure a firm’s operatingefficiency, and the next three ratios measure asset productivity, return on assets,and return on equity.Gross Profit MarginGross Profit Margin0.60.50.40.30.2JCPKSSDDSSSISMRT0.10.02002 2003 2004 2005 2006Year79
Gross profit margin is a ratio between a company’s revenues minus itscost of goods sold compared to its revenues. The gross profit margin ratioprovides a quantitative analysis of the company’s ability to pay operating andother expenses and build future savings. A high ratio is preferred because itmeans the company has more money left after adjusting for costs of good soldto pay bills and reinvest in the company for the purpose of growth.J. C. Penney has maintained a gross profit margin of approximately 0.39over the past four years, which is inline with the industry average. Prior to 2004,J. C. Penney suffered lower gross profit margins due to the lagging performanceof the company’s subsidiary Eckerd Pharmacy, which the company sold to theJean Coutu Group (PJC) Inc. (Coutu) and CVS Corporation and CVS Pharmacy,Inc. (together, CVS) in 2004. In comparison to the overall industry, J. C.Penney’s performance is lined up with its competitors.Operating Profit MarginOperating Profit Margin0.140.120.100.080.06JCPKSSDDSSSISMRT0.040.020.002002 2003 2004 2005 2006YearOperating profit margin compares the relationship between a firm’soperating income and its sales. A higher operating profit margin indicates80
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J. C. Penney Company, Inc. Equity V
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Industry AnalysisIn 1902, James Cas
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Financial Analysis, Forecast Financ
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Business & Industry AnalysisCompany
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Industry OverviewThe retail industr
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Five Forces ModelThe Five Forces Mo
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ConcentrationThe level of concentra
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capable of offering lower prices th
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If a firm wishes to shut down, it m
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Legal BarriersMany industries have
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These costs include issues such as
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Bargaining Power of SuppliersThe de
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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 62 and 63: Below is a chart of sales manipulat
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 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
Page 112 and 113: Regression Analysis3 Month Rate 72
Page 114 and 115: Intrinsic ValuationsIntrinsic valua
Page 116 and 117: amount in the eye’s of shareholde
Page 118 and 119: This particular stock price in our
Page 120 and 121: esidual income or converge. Future
Page 122 and 123: To find our long run return on equi
Page 124 and 125: Sensitivity AnalysisGrowth Rates0 -
Page 126 and 127: for this large difference between s
Page 128 and 129: 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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