Switch to:
JC Penney Co Inc  (NYSE:JCP) ROC %: 4.07% (As of Jul. 2017)

Return on capital measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called ROIC %. JC Penney Co Inc's annualized return on capital (ROC) for the quarter that ended in Jul. 2017 was 4.07%.

As of today, JC Penney Co Inc's WACC % is 5.07%. JC Penney Co Inc's return on capital is 3.22% (calculated using TTM income statement data). JC Penney Co Inc earns returns that do not match up to its cost of capital. It will destroy value as it grows.

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

JC Penney Co Inc Annual Data

 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15 Jan16 Jan17 ROC % -15.52 -14.99 -4.01 -1.63 3.76

JC Penney Co Inc Quarterly Data

 Jan13 Apr13 Jul13 Oct13 Jan14 Apr14 Jul14 Oct14 Jan15 Apr15 Jul15 Oct15 Jan16 Apr16 Jul16 Oct16 Jan17 Apr17 Jul17 Oct17 ROC % 1.71 20.47 -7.33 4.07 -4.90

Calculation

JC Penney Co Inc's annualized Return on Capital (ROC) for the fiscal year that ended in Jan. 2017 is calculated as:

 Return on Capital (ROC) (A: Jan. 2017 ) = NOPAT / Average Invested Capital = Operating Income*(1-Tax Rate) / ( (Invested Capital (A: Jan. 2016 ) + Invested Capital (A: Jan. 2017 )) /2) = 395 * ( 1 - 50% ) / ( (5214 + 5303) /2) = 197.5 / 5258.5 = 3.76 %

 Invested Capital (A: Jan. 2016 ) = Book Value of Debt + Book Value of Equity - Cash = Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Minority Interest + Total Equity - Cash = 4678 + 127 + 0 + 1309 - 900 = 5214

 Invested Capital (A: Jan. 2017 ) = Book Value of Debt + Book Value of Equity - Cash = Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Minority Interest + Total Equity - Cash = 4558 + 278 + 0 + 1354 - 887 = 5303

JC Penney Co Inc's annualized Return on Capital (ROC) for the quarter that ended in Jul. 2017 is calculated as:

 Return on Capital (ROC) (Q: Jul. 2017 ) = NOPAT / Average Invested Capital = Operating Income*(1-Tax Rate) / ( (Invested Capital (Q: Apr. 2017 ) + Invested Capital (Q: Jul. 2017 )) /2) = 212 * ( 1 - -1.64% ) / ( (5444 + 5134) /2) = 215.4768 / 5289 = 4.07 %

where

 Invested Capital (Q: {Q2}) = Book Value of Debt + Book Value of Equity - Cash = Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Minority Interest + Total Equity - Cash = 4283 + 319 + 0 + 1205 - 363 = 5444

 Invested Capital (Q: Jul. 2017 ) = Book Value of Debt + Book Value of Equity - Cash = Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Minority Interest + Total Equity - Cash = 4052 + 241 + 0 + 1155 - 314 = 5134

Note: The Operating Income data used here is four times the quarterly (Jul. 2017) operating income data.

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Explanation

Return on Capital measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called ROIC %. The reason book values of debt and equity are used is because the book values are the capital the company received when issuing the debt or receiving the equity investments.

There are four key components to this definition. The first is the use of operating income rather than net income in the numerator. The second is the tax adjustment to this operating income, computed as a hypothetical tax based on an effective or marginal tax rate. The third is the use of book values for invested capital, rather than market values. The final is the timing difference; the capital invested is from the end of the prior year whereas the operating income is the current year's number.

Why is Return on Capital important?

Because it costs money to raise capital. A firm that generates higher returns on investment than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.

As of today, JC Penney Co Inc's WACC % is 5.07%. JC Penney Co Inc's return on capital is {stock_data.stock.roic}}% (calculated using TTM income statement data). JC Penney Co Inc earns returns that do not match up to its cost of capital. It will destroy value as it grows.

Be Aware

Like ROE and ROA, ROC is calculated with only 12 months of data. Fluctuations in the company's earnings or business cycles can affect the ratio drastically. It is important to look at the ratio from a long term perspective.

Related Terms

From the Internet

###### RT @Richa_Writes: #Black Friday draws early shoppers, but real frenzy is online

- Reuters 2017-11-24 15:12:43

###### Instant Pot sold out online? Kohl's CEO shares his tip to find it this Black Friday

- cnbc 2017-11-24 12:50:59

###### Macy's CEO sees Black Friday traffic stronger than last year, with fewer promotions

- cnbc 2017-11-24 11:58:06

###### Black Friday frenzy as throngs of shoppers line up for deals around the country

- cnbc 2017-11-24 10:29:55

###### Retail Stocks on Black Friday Show Bricks-And-Mortar Isn't Dead Just Yet

- theStreet 2017-11-24 09:49:00

###### Morning Movers: Digging In the Haystack for Teva, Nektar

- Barron's 2017-11-24 09:18:00

###### Is Black Friday Still the Day Retailers Move From Loss to Profit?

- Fool 2017-11-24 08:46:00

###### JC Penney Up 18% Since Q3 Earnings, Can It Gain Further?

- Zacks 2017-11-24 07:57:00

###### Much Turkey Try Swans

- Seekingalpha 2017-11-24 06:45:04

###### Better ways to spend time and money on Black Friday

- theStreet 2017-11-23 22:43:00

###### We Just Visited Walmart and Kmart Stores on Thanksgiving -- What We Saw

- theStreet 2017-11-23 08:27:00

###### Watch: Which Retailers Are Kicking Off Black Friday Today?

- theStreet 2017-11-23 06:32:00

Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to \$400 per referral. ( Learn More)