Financial Analysis for J.C Penney and Target Essay

As discussed earlier, the liquidity and solvency ratios show that, although Target holds large amounts of free cash flow to deal with risk and possible acquisition, it still has a high debt to asset ratio.

Quick ratio is another measure of liquidity. In quick ratio we consider only liquid assets and its standard ratio is 1:1. Quick ratio of Peyton Approved is 7.63. Thus, there is no doubt that the company has got excellent liquidity. Company has enough liquid assets to pay off current liabilities.

“Retailers like Target and Wal-Mart were “definitely on the rebound,” according John Challenger, CEO of the firm in charge of the report.  “[It] indicates that consumers are ready to start spending again,” he noted. (Fontevecchia 1)” Taken from an article noting that 2011 saw the fewest job cuts since 1993. Even nationally Target is being noted as having an improvement in their performance.

The quick ratio denotes that the company's ability should satisfy the short-term obligations. In brief, how many times can the firm respond its current liabilities by using current assets without the final stock? As many times it can cover its obligations, as better for the company.

The latest figures for J.C. Penney 's sales and profits are from 2008 to 2012. According to the company 's latest United States Securities and Exchange Commission filings for 2012, the report states that the company 's market price common stock has fluctuated substantially and may continue to fluctuate significantly (JCP, 2013). Below is a graph with values indicating the company 's struggle for profits in 2012 following the hiring of Ron Johnson. The former Apple executive launched a new pricing strategy following his appointment as CEO of J.C. Penney in late 2011.

1. You are analyzing a company that has cash of $2,000, accounts receivable of $3,700, fixed assets of $10,900, accounts payable of $6,600, and inventory of $4,100. What is the quick ratio?

Working capital is the money that a company has after paying off its current liabilities and with which it can finance its operating and working capital requirements. The higher a number the better a company is able to pay off its debt and have cash for meeting its financial obligations. The current ratio is used to gauge a company 's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. The current ratio denotes the efficiency of a company 's operating cycle or its ability to turn its products into cash, which is a key requirement for business success. Quick ratio is an indicator of a company 's short-term liquidity. The quick ratio measures a company 's ability to meet its short-term obligations with its most liquid assets, essentially cash and cash equivalents. The higher the quick ratio, the better the financial position of the company in terms of its ability to meet its liabilities.

JC Penney's gross profit ratio is better than Kohl's gross profit ratio by almost 1% (39.2% - 38.2%)

Interpretation and Comparison between the two companies' ratios (Reading the Appendix of Chapter 13 will help you prepare the commentary)

Moving on to the year 2014, we can see that Harvey Norman, has considerably decreased its current ratio by 57% from the previous year (see Graph 1), while JB Hi-Fi, has increased its current ratio by 37%. Hence, we can say that Harvey Norman has been more efficient in managing its current assets than JB Hi-Fi.

Target Corporation is having a very stable financial policy and dividend policy. From the historical financial data, Target had debt $11,044M, $11,202M, $10,599M, $17,471M, and $19,882M in the year of 2005,2006,2007,2008, and 2009 respectively. The long-term debt/equity ratio rises from 69.34% to 108%.

The Quick Ratio also known as Acid Ratio is used by firms to determine liquidity position. It explains if the firm is able to pay all of their current debt liabilities. (Dyson, 2010) The graph above illustrates that over the period from 2007 to 2011 quick ratio was not more that 1, which means that their debts might not be covered all. The graph also indicates that a peak was in 2011.

JC Penney is not as large as some of its competitors, many of which have more substantial resources and are constantly attacking their market share. The company also faces threats from economic conditions, such as high unemployment and the recent recession. When consumers are under financial pressures can easily decide to shop elsewhere, such as Kohl’s, Target, and even the dreaded Walmart. Even the perception of better value can drive consumers elsewhere.

The quick ratio reflects on a company’s ability to meet its current liabilities without liquidating inventories that could require markdowns. It is a more stringent test of liquidity than the current ratio and may provide more insight into company liquidity in some cases. For Colgate-Palmolive, the quick ratio has declined from 0.73 in 2008 to 0.58 in 2010. While this does not necessarily mean a problem, a higher current ratio and quick ratio analysis will mean that the company will not have difficulty in meeting its short-term obligations from its operations and not by liquidating its assets.

The quick ratio of 1.46 is a further analysis into the actual monetary values that are highly liquid and excluding fixed assets as part of the assets. The CFO/Avg. current liabilities also show a healthy 73%, 28% in 2004, on average of which is still higher than the industry.