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

Balance Sheet AnalysisWhen determining the future profitability of J. C. Penney, we began by creating acommon-sized balance sheet to get a general idea of how the firm was performing compared tothe industry. We then used the industry averages as a benchmark and compared their numbersto those of J. C. Penney’s. This aided in the determination of which ratios to utilize in order toprovide us with the best estimations for the forecasting process.We began by looking at the asset portion of the balance sheet, ultimately deciding that ourtotal assets line was what we should use to base all of our other asset estimations. Thisdetermination was decided upon because obviously current and non-current assets should becombined and result in total assets. Looking at the industry average, we agreed that it would notbe the best number to base our assumptions on because our firm is relatively larger than that ofmost within the industry and should therefore have more assets.While looking at our asset turnover, which was determined to be 1.584, we noticed a trendover the previous two years and decided to use it in comparison to our already forecasted salesfor our income statement analysis. Once we determined our total assets, we then decided uponthe percentage of current and non-current assets based off our forecasted total assets.Breaking up these two portions, we began analyzing total current assets. We determinedcash and short-term investments to be an average of the previous two years. They were higherthan the industry average because we have continuously been above the industry average.Because of the fact that our company is larger than others within the retail industry, we agreedthat this was a reasonable number. Accounts receivable turnover was based on the last year andapplied to our forecasted sales from the income statement. We used the most recent A/Rturnover of 75.68 because it was approximately where the industry average should be. Theinventory turnover ratio used was based on the number given for the last year because it was ata stable level for the previous two to three years. We manipulated this equation to come up withinventory by using our already forecasted cost of goods sold. Total non-current assets was thendetermined based on our estimations of total current assets. Property and equipment wasassumed to be increasing because of the plans for expansion of our company within the next fewyears. We are thus converging toward the industry average.94