Analysis of the Cash Conversion Cycle of JC Penney

Analysis of the Cash Conversion Cycle of JC Penney
The cash conversion cycle shows the time (in days) needed by a company to generate cash from its operations i.e. the days needed by a company to receive cash from the sale of goods which are developed (or manufactured) by procuring the raw materials. This metric is significant for a company as it shows the operational efficiency of the company (Atill & McLaney, 2018). The cash conversion cycle of JC Penney over the period 2016 to 2018 is presented below.
Figure 1: Cash Conversion Cycle
The above figure shows that the cash conversion cycle for the company is reducing over the observation period which indicates that the company is quickly generating cash from its operation. To understand the reason behind the improved cash conversion cycle, there is a need to understand the three components of the cash conversion cycle as done below.
Table 1: Components of Cash Conversion Cycle
Usually a company mentions about its account receivable in the financial statements, however, based on JC Penney (2017) and JC Penney (2018), it was found that the company has no accounts receivable, which is unusual as companies usually have some accounts receivable on their balance sheet as there is a low probability that the company has received all the cash payments for sales by the last day of the accounting period. Thus, it can be inferred that the accounts receivable cannot be zero (Atill & McLaney, 2018), however since the company has not disclosed it separately, so it is considered ‘Not-Applicable’. Thus the cash conversion cycle for the company is made up of inventory conversion period and A/P conversion period only.
From table 1, it can be inferred that both the inventory conversion period and the A/P conversion period are decreasing. To unde...