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

equity. As we follow the trend through the years, you can see the impact of thesale of Eckerd Pharmacy in 2004. Debt dropped, bringing the ratio down, butdue to a push in change in brand lines and differentiation, the ratio rises again.Times Interest EarnedTimes Interest Earned55453525155-5-15JCPKSSDDSSSISMRT-25-35-45-552002 2003 2004 2005 2006YearTime interest earned ratio tells that for every dollar in interest expense,the company has this amount in NIBIT to spend on interest and taxes. Theindustry numbers run around 2-15 times interest payable to NIBIT. In 2004,Stein Mart’s times interest earned suddenly shot up because it reported netinterest income of $332,000 compared to interest expense of $1.7 million for2003. As a result of increased sales, decreased inventories, and ongoingexpense control, Stein Mart has not borrowed on its revolving credit agreementsince the first quarter of 2004, completely eliminating its interest expense (SteinMart 2004 10-K).J. C. Penney is unfavorable with this ratio. As we look at years 2003-2005, the company shows a negative times interest earned. This says that inthese years, the company did not earn enough to cover their interest expenses;86