fin 451

JC Penny Case Questions

Primary Questions (These questions you should respond to in your presentation and case report.):

1. What do the liquidity ratios—Current, Quick, and Cash-to-Sales—reveal about JCP's financial position for the eight quarters spanning Q1 2011 to Q4 2012? Based on what you have discovered, what other ratios might a financial analyst be interested in that are related? Explain your choices.

 

2. JC Penny was in a tough financial spot.

"Cash flow is weak and could become critical. At current burn rates—and absent any further asset sales—we estimate that J. C. Penney will be virtually out of cash by fiscal year-end 2013." On top of that, JCP was dealing with allegations that the company was defaulting on its 7.4% debentures, which were due in 2037.

Suppose JCP presents a plan to raise capital using equity or debt. Discuss how the market may react to a capital raise using equity or debt. Ultimately, what recommendation would you make?

3. Evaluate the statement made near the end of the case:

"We increasingly question JCP's ability …"

Do you agree with this statement? Compute the FCF for JC Penny for 2010 – 2012 (Help! https://www.investopedia.com/terms/f/freecashflow.asp). Based on this information, will JCP generate enough FCF to turn things around?

4. What effect did Bill Ackman have on the company? Were his interests appropriately aligned with those of shareholders? How do you assess the board's decisions regarding CEO appointments? Was Ron Johnson the right choice as the CEO?

 

Additional Questions (to be answered near the end of the case report):

1. The JC Penny model has been large "anchor" stores in malls. Using your knowledge of supply chain management/inventory management, discuss how these factors contributed to the ultimate failure of JC Penny. Are there any financial ratios that show this in numbers?