JC PENNY COMPANY Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

JC PENNY COMPANY Case Solution

COMPANY OVERVIEW

The JC Penny Company is America's most prominent and oldest retailer company currently going through hard times. It was founded in 1914; by a young businessman James Cash Penny. since then JC Penny went through great expansions all over United States. Initially, JC Penny started from Wyoming; then James moved its headquarters to New York. By 1929, JC penny had more than 1000 stores to increase their operations, JC Penny was managed by great business minds right from its inception, there is a great variety of experience embedded in the roots of JC penny. In order to stay with the consumer trends and to understand their requirements, JC Penny took many initiatives such as; it went through a major reconstruction phase in 80's to stay on track since it first started operating as a retailer company.

JC Penny also went through several turn around phases when it found difficult to catch the pace of business in different areas. The management of JC Penny changed their strategies to stay profitable and to maximize shareholders and other investors’ wealth, especially when it went public through listing at NYSE in 1929; the years following, 1929 they did make significant profits and enjoyed substantial growth, which led them to announce dividends in 1987 until 2011. However, right after the first quarter of 2011. Ullman the greatest CEO JC Penny ever had, stepped down as CEO. He worked hard to give the company a new identity by integrating a way of conducting business in 80's and the way in which modern business is conducted, he signed very important deals with international brands such as Liz Claiborne and Sephora. He also put a lot effort in business during the global economic crises of 2008.

Problem Statement

Currently, JC Penny is facing diminishing cash balance as they have insufficient funds to carry out their operations; their share price is going through decline phase. Once a successful retail leader is now facing significant losses.

PERFORMANCE ANALYSIS

The JC Company’s liquidity, working capital analysis including leverage ratios and the recommendation on the best way to raise new finance are as follows:

LIQUIDITY RATIOS

The company’s liquidity position is getting worse after every quarter. The calculated current ratio for 2011 quarter one is 2.11:1 and for the fourth quarter is 1.43:1.It is quite evident from this ratio that the liquidity position over eight quarters is deteriorating. The quick ratio is on the edge, which means soon they will be unable to pay out their liabilities when they fall due. If we take a look at quick ratio, which gives a more conclusive liquidity position because it excludes inventory from liquid assets. The calculated quick ratio is declining from 0.83:1 to 0.52:1. JC Penny Company was already demonstrating its inability to pay out its liabilities in the first quarter of 2011. If we look at the quick ratio of quarter four 2012, the situation is further getting worsened which is evident from the declining quick ratio.

The quick ratio of less than 1 represents that company does not have enough money to pay out its short-term liabilities, which is a very bad position to tackle for any company especially big companies who were once successful because they normally have large numbers of short-term lenders. Moreover, if we look at company’s current net profit margin, it is negative and it was on already on the verge of becoming negative if we look at the first quarter of 2011 net profit margin, which is 1.62%. It being negative means that the company is in a severe loss because the net profit margin for 2012 quarter 4 is -14.21%....................

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