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Running head: SHORT TITLE OF PAPER (50 CHARACTERS OR LESS)
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Running Head: BUSINESS RISK
1
Business risk
FIN-317
August 8, 2016
Unfortunately, I did not see a clear identification of three specific business risks that J C Penney
is facing. I can try to pull out from the content that high debt, changing demographics (declining
middle class), and high costs may be the risk factors, but there is no clear indication that this is
what you intended. Also, nowhere in the paper did you indicate what company you were writing
about.
BUSINESS RISK
2
You provided two reference sources, which is the minimum required for the assignment. It has
been noted on previous occasions what the significance of this is, and your paper would have
been improved if there had been additional research. In addition, it has been noted previously,
most recently in my email of Aug 3, that a key reference source should be the 10K report that
Penney must file with the SEC. The 10K lists a couple of dozen specific risk factors that Penney
believes could impact its business, and including some of these in the paper would have
strengthened it considerably.
From a writing standpoint, the paper was generally very well written, although there were
instances of using first person and plural pronouns for singular nouns
BUSINESS RISK
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Business Risk
Business risk refers to possibility that a given company may have lower profits than is
anticipated or sometimes experience losses. Business risk affects business operations and
influenced by several factors such as sales volumes, price per unit, input costs, government
regulations, competition and overall economic climate (Alexy & Reitzig, 2012).
The company has several lines of business that enables it to make sales anyway regardless
of the seasonal behavior that some products may sale or not sale. This diversification in what it
offers to consumers is a sure a way for the company that sales and thus revenues are experienced
throughout the year. The divisions in the company comprise of home division, women’s apparel
division, women’s accessories division, men’s apparel division, children’s division, footwear
division, jewelry division. These divisions have unique characteristics that make the company
experience sales throughout the entire year.
Do the financial statements address these risks?
The financial statements show that the company is unable to address these business risks.
The retailer is struggling as we can see that it has been consistently reporting losses in all of the
past four years. When looking at the company’s balance sheet, one notices that it is loaded with
greater debt levels. This makes the company pay a lot of interest expense of over $400 million
annually (Gross, 2015).
Again, looking at the sales volume, we realize that they significantly fell or rather collapsed
when Ron Johnson, the former CEO attempted drastic makeovers in the company. Despite the
changes it has made so far, the retailer is still generating far too little revenues.
BUSINESS RISK
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The good news on business risk is that threats of bankruptcy have subsided due to its good cash
flow position as it has around $2 billion in form of liquid cash and credit lines (Gross, 2015).
However, this is not sufficient since the current status is unsustainable and thus it is just a matter
of time before the issue explodes if immediate and radical measures are not taken.
How have the recent market changes affected your company?
The company over the years has been focusing or targeting the middle class in driving their
sales. However, with time we see that the middle class economy is shrinking with time. What this
means then is that companies can therefore reach either or both low end and/or high end
consumers. This then leaves nothing to appeal to the middle class that was once very broad.
Their historical base of relying on middle income earners or households have greatly
contributed to the downfall of the retail as the class keeps on shrinking day by day. Disposable
spending capacity of laid off employees in the country also have contributed in the decline in the
sales. The hourglass economy will not allow the company to rely on their esteemed traditional
middle income consumers. They need to shift gears and appeal to different groups of people.
Also the company may relook into its pricing strategy. Most people experience a decline
in available income to spend and therefore it would be reasonable to adopt effective cost cutting
measures that would ensure that its products are accessible and affordable to the common citizens
especially when the economy is not doing well.
BUSINESS RISK
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References
Alexy, O., & Reitzig, M. (2012). Managing the business risks of open innovation. McKinsey
Quarterly, 1, 17-21.
Gross, A. (2015). The decline of the American middle-tier department store: A case study of JC
Penney (Doctoral dissertation).
…
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