FACULTY OF BUSINESS AND MANAGEMENT

BACHELOR’S IN BUSINESS ADMINISTRATION (HONS.) FINANCE

BA242

INTRODUCTION TO CORPORATE FINANCE

FIN430

INDIVIDUAL ASSIGNMENT: WORKING CAPITAL MANAGEMENT

JC PENNEY COMPANY INC.

PREPARED BY:
NURMISHA AQMA SOFIA BINTI SELAMAT (2021610268)

CLASS:
BA2422A

PREPARED FOR:
DR. NUR ZAHIDAH BAHARUDIN

SUBMISSION DATE:
9 JUNE 2022
Table of Contents

1.0 COMPANY PROBLEMS 2

2.0 SUGGESTION AND RECOMMENDATION 3

3.0 CONCLUSION 4

4.0 REFERENCES 5

5.0 APPENDIX 6

1
Company that I choose for this report is J.C. Penney Company, Inc. (JCPenney) is the
second largest department store retailer in the United States (after Sears, Roebuck & Co.),
as well as the largest catalogue merchant, with licencing agreements for its items all over the
world.

1.0 COMPANY PROBLEMS

J.C. Penney has filed for bankruptcy, burdened by debt and afflicted by the coronavirus.
Since 2016, J.C. Penney's sales have been declining year after year. It now has about 860-
stores, which is fewer than a fourth of what it had in 2001. The company's nearly $11 billion
in sales for the previous fiscal year represent nearly a third of its total sales for that year. It
has commitments from its existing first lien lenders for $900 million in financing to fund
bankruptcy, including $450 million in new money. As of the Chapter 11 filing date, it had
approximately $500 million in cash on hand. J.C. Penney drew $1.25 billion in cash from an
existing credit arrangement in March, providing some of the liquidity it immediately needs.
The retailer also made its lease payments for April. That rating makes it difficult to secure
new financing. Bloomberg reported that the creditors in question consist of first-lien and
second-lien lenders who would accept real estate as collateral if it had not been named as
collateral for other loans. J.C. Penney’s restructuring plan, the company would put some of
its property into a real estate investment trust that would sell shares and function separately
from its “new JCP” retail operations.

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2.0 SUGGESTIONS OR RECOMMENDATIONS

In my suggestion, I would recommend JC Penney to using a maturity matching or Hedging

approach strategies. This approach is a strategy of working capital financing wherein short-
term requirements are met with short term debts and long-term requirements with long term
debts. For the example, JC Penney should do more in short-term financing so they can
lower the cost of borrowing such as lower interest rate and shorter duration in payback
period. The way a company manages its debts can have an impact on its working capital
position. Manual processing is frequently the cause of late or missed debt payments, thus
the penalties. Some penalties appear innocuous, but if late payments become a habit due to
debt mismanagement, they will most likely deplete your working capital in the long run.

Next, the second suggestion that can improve JC Penney working capital is using the
aggressive approach strategies. An aggressive working capital approach is one in which you
aim to get by with a small amount of current assets and a large amount of short-term credit.
The company will be able to convert its current assets to cash on time. For example, JC
Penney can improve its inventory and accounts receivable management, so cash and
liquidity will improve. As a result, the company's working capital will improve. Similarly, if the
company can negotiate better credit terms with its suppliers, it will benefit from having a
larger cash balance (even though the amount of working capital will not change).

Finally, the conservative approach is a strategy that can be used in the JC Penney firm. This
is a low-risk approach to working capital finance. This method allows a corporation to keep a
larger level of current assets and, as a result, a higher level of working capital. JC Penney
can finance the majority of its working capital via long-term sources of money, such as
equity, debentures, and term loans, for example. As a result, the risk of short-term funding is
significantly decreased. This strategy has a high amount of working capital and current
assets (inventory, accounts receivable, and, most crucially, liquid cash or bank balance).
Any unforeseen increase in product sales, production plans, any unusual delay in
procurement time, and so on are all absorbed by a bigger inventory level. This results in
increased customer satisfaction and smoother company operations.

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3.0 CONCLUSION
In conclusion, the company had managed to avoid bankruptcy longer than another similar
mall-based retailer. Thus, JC Penney can decide to use which strategies to improve their
working capital in financing. They can choose either to use the aggressive promises the
highest return but carries the greatest risk or the aggressive strategy promises the highest
return but also carries the highest risk or use the conservative which has the lowest risk but
also the lowest expected return, while hedging (maturity matching) falls somewhere in the
middle.

Working capital management ensures that a company has enough cash and resources to
run a profitable and healthy business while meeting its current liabilities. A company would
be constantly at risk of having a working capital deficit, which would stymie its operations if it
did not have it. I hope JC Penney can improve their financial and be better in future.

(747 words)

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 4.0 REFERENCES

1) Approaches to Working Capital Financing. (n.d.). MBA Knowledge Base. Retrieved June 8,

2022, from

https://www.mbaknol.com/financial-management/approaches-to-working-capital-financing/

2) Chutchian, M. (2020, November 9). J.C. Penney rescue deal approved in bankruptcy court.

Reuters.

https://www.reuters.com/article/us-jc-penney-bankruptcy-idUSKBN27Q0FB

3) Approaches to Working Capital Financing: Matching Approach, Aggressive Approach,

Conservative Approach. (2021, October 15). indiafreenotes. Retrieved June 8, 2022, from

https://indiafreenotes.com/approaches-to-working-capital-financing-matching-approach-

aggressive-approach-conservative-approach/

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5.0 APPENDIX