Financial Statement Analysis

Common-size and Horizontal Analysis

Total assets of JC Penny Company for the financial year 2014/2015 were 10.4 billion dollars. This was a decline from the previous year 2013/2014 by 11.83%. This change may be attribute to decline in current assets majorly the inventories and cash. During the financial year 2014/2015 the company ranks above its close competitors such Dillards in terms of total assets. This is great basis for attracting investors who may be willing to invest in the industry. However the company is not on top of the industry in terms of asset base as it ranks below its competitors such as Macys who had a total asset of 20.6 billion dollars. JC Penny is there for the main center for investment in the industry if a decision was to be made on the basis of balance sheet strength.

Total liabilities of the company declined in the financial year 2015 to 8.49 billion dollars from 8.71 billion dollars in the previous year which had increased from $ 6.6 billion in 2013. The increase in total liabilities by 31.8% in the financial year 2014 was majorly associated with increase in long term borrowing made during the year. The long term debt was used to support the firm’s investment activities of the company.

Total shareholder equity declined from $ 3.087 billion in 2014 to $1.914 billion. Despite the increase in additional paid in capital by $ 35 million, there is a decline in the total shareholder equity. This decline is associated with increase in accumulated loss by $437 million. The share price of the company has not done very well it went down 12.78% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the previous year. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time. This means that investors will be attracted to other companies in the industry.

Looking at the total assets of Macys for the financial year 2014/2015 were 21.4 billion dollars which was a little decline from the previous year in 2013/2014 by 1%. During the financial year in 2014/2015, the company had the highest total assets comparing to other 2 companies, JC Penny and Dillards. During 2013/2014 the total assets of Macys increased from 20.9 billion dollars to 21.6 billion dollars which was a little increase by 3% also. From 2013, Macy’s total assets go up and down due to the cash and cash equivalents and in their inventories.

Total liabilities of Macys increased in the financial year 2015 to 16.1 billion dollars from 15.4 billion dollars in the previous year which had increased from 14.9 billion dollars in 2013. It is keep increasing maybe due to the long term debt which it supported the company’s investment activities. Macys long-term debt were 6.8 billion dollars in 2013 and suddenly increases in 2015 by 7.3 billion dollars which it increased by 8% from the previous year from 6.7 billion dollars.

The Total shareholder equity also declined from 6.2 billion dollars in 2014 to 5.4 billion dollars in 2015. There was a decrease in additional paid in capital by 58% which went from 2.5 billion dollars to 1.04 billion dollars. Because of an increase in accumulated loss by 407 million dollars, the total stockholders’ equity declined.

Total assets of Dillards for the financial year in 2013 were 4.4 billion dollars and by the time it gets to 2015, the company increased a little by 4.17 billion dollars which were 3% increase from previous year, from 4.05 billion dollars. Out of other 3 companies, Dillards had the lowest total assets, but they show constant increase in their total assets. Dillards cash and cash equivalents constantly increasing from 2013 to 2015 by 124 million dollars to 404 million dollars. Their inventories also constantly increase from 2013 to 2015 which made the company’s total assets to increase.

The total liabilities of Dillards has decreased from 2.08 billion dollars to 2.06 billion dollars by 1% in 2013 to 2014. In 2015, the total liabilities increased by 4% from 2.06 billion dollars to 2.15 billion dollars.

Total shareholder equity increased from $1.99 billion dollars to $2.01 billion dollars in financial year 2014/2015. In financial year 2013/2014, total shareholder equity increased from $1.97 billion to $1.99 billion. In financial year 2012/2013, total shareholder equity decreased from $2.05 billion to $1.97 billion. This decline is associated with increase in accumulated loss by $8 million dollars.

Cash and cash equivalent s include cash short -term investments that are highly liquid investments with original maturities of three months or less. Cash short -term investments consist primarily of short -term U.S. Treasury money market funds and a portfolio of highly rated bank deposits and are stated at cost, which approximates fair market value due t o t he short-term maturity. Cash in banks and in transit also include credit card sales transact ions that are settled early in the following period. Since May 2012, the Company has not paid a dividend. The major reason for this is poor returns and the 2013 senior secured term loan and 2014 senior asset -based credit facility, the company is therefore subject to restrictive covenant s regarding our ability to pay cash dividends. During the financial year 2024/2015, the company completed an offering of $400 million aggregate principal amount of 8.125% Senior Unsecured Notes.

Depreciation and amortization expense in 2014 increased $30 million to $631 million, or 5.0%, compared to $601 million in 2013. This increase is a result of the investment and replacement of store fixtures in connection with the implementation of the company’s prior strategy. Depreciation and amortization expense for 2013 excludes $37 million of increased depreciation as a result of shortening the useful lives of department store fixtures that were replaced during 2013 with the build out of the home department and other attractions.

The company sold its investment in three joint ventures for $32 million, resulting in a net gain of $23 million. During the second quarter of 2013, JC Penney sold its investment in one joint venture for $55 million, resulting in a net gain of $62 million. The gain for this transaction exceeded the cash proceeds as a result of distributions of cash related to financing activities in prior periods that were recorded as net reductions in the carrying amount. This disposal of investment in turn reduces total assets of the company. This weakens the financial position of the company and therefore investors may be swayed away to its competitors or other industries. This disposal indicates cash flow problems and uncertainty in the going concern of the company.

References

Beasley, N. (1948). Main Street Merchant: The Story of the JC Penney Company. Whittlesey House.

Growth, Profitability, and Financial Ratios for JC Penney Co Inc (JCP) from Morningstar.com. Retrieved from http://financials.morningstar.com/ratios/r.html?t=JCP

JC Penney Balance Sheet analysis over time. (n.d.). Retrieved from http://www.macroaxis.com/invest/symbolRatiosCompareOverTime/JCP?t=bs

http://www.sec.gov/Archives/edgar/data/1166126/000116612615000013/jcp-0131201510k.htm