J.C. PENNEY CASE ANALYSIS Case Solution
Â Â Â Â Â Â Â Â Â Â Â Finally, if we analyze the cash to sales ratio then it could be seen that this ratio has also been declining but with slight ups and downs since 2011. For instance, the ratio has been high from the beginning of 2011 to the first quarter of 2012 but overall, the ratio is poor and the decline is significant. The cash to sales ratio for the first quarter of 2011 was 45% and currently in 2012 this ratio is 24%. This shows that the company is facing issues in converting its short terms assets into cash and customers are delaying the payments to company. Overall, all the three liquidity ratios show that the predictions of the industry analysts are correct and the liquidity position of the company is weak.
Leverage Ratios Analysis Q1 2011 to Q4 2012
Â Â Â Â Â Â Â Â Â Â Â The financial position for the JC Penney store has also been analyzed through the leverage ratios. First of all, the debt to capital ratio for the company has been calculated and if we observe the trend for this ratio over the last 8 quarters. Then it could be seen that the company has maintained a low proportion of debt in the capital structure of the company and this has been on average 33% to 36% as compared to the industry average of 30%. This shows that the debt to capital ratio for the company is strong and it has the capacity to borrow more debt. The current debt to capital ratio for the company is approximately 33% to 34%.
Â Â Â Â Â Â Â Â Â Â Â Next, the interest coverage ratio has been computed to show the available profit to pay off the debt obligations. The interest coverage ratio in the first quarter of the year 2011 was 2.77 times. This is a low coverage ratio for a business in the retailer sector. More worse is the current interest coverage ratio of -13 times for the company since the company has generated a loss in 2012. The net operating income for the JC Penney store is negative and the company will face issues in paying its debt obligations in future and also raising debt in future.
Â Â Â Â Â Â Â Â Â Â Â Finally, the cash to debt ratio has been computed for the last 8 quarters. This ratio shows the ability of the company to pay off all the debt obligations from the generated operating cash flows of the company. If we observe the trend for this ratio for the past 8 quarters then this ratio has been also seen to show ups and downs, overall this ratio has been falling for the company. The cash to debt ratio for JC Penney in the first quarter of 2011 was 23% and in the fourth quarter of 2012, it is only at 14%.
Management of Working Capital Accounts & Opportunity to squeeze more cash
Â Â Â Â Â Â Â Â Â Â Â In order to assess and analyze the working capital accounts of the company and assess the working capital policies for JCP, a number of working capital ratios have been computed for the company as shown in the appendix. First of all, the dayâ€™s payables outstanding ratio has been computed for the company which shows the average days the company takes to repay its suppliers and other traders. The dayâ€™s payables are high for the company at 313 days in fourth quarter of 2012 which is a positive thing for the company. The company is enhancing its working capital cycle by delaying the payment to suppliers…………..
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