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

We then began to look at the equity portion of the balance sheet. We began by looking atreturn on equity. We used an average of the last two years because, compared to the industry,there seems to be a convergence. We determined that J. C. Penney would remain constant atthe level of 28.77 because of this industry convergence. Retained earnings were determined bytaking the forecasted net income from the income statement and subtracting out the forecasteddividends. Since we cannot forecast the number of share we will have in the future, we used the226 million outstanding shares we already have.We then backed into total liabilities because of how liabilities plus equity equals assets. Wedecided that these numbers should balance out. We used the current ratio to determine what ourcurrent liabilities should be. We determined that trade payables should be a little higher than thatof the average found on our common-sized balance sheet. This is because we are increasing atan incremental level to meet industry average. We decided that the same process and reasoningshould be applied to our gift cards. Once the current liabilities were determined, we began toanalyze our total non-current liabilities. Total accrued expenses have had consistent ratios overthe past five years so we slightly increased it to meet the industry average. Notes payable havehad a consistent percentage of 20 for the past five years. We determined that this percentageshould be kept because once amounts get paid off we will have more notes payable due to ouraccelerated growth plan.95