For the past year or so, J.C. Penney (OTC:JCPN.Q) has been plagued by concerns that it would run out of cash. This was a very natural outgrowth of the fact that J.C. Penney's free cash flow was negative to the tune of $906 million in 2012 and more than $2.7 billion in 2013.

In 2013 alone, J.C. Penney had to float a $2.25 billion term loan, issue nearly $800 million of new stock, and draw heavily on its credit line in order to fund its massive losses. J.C. Penney investors were thus very relieved when CEO Mike Ullman assured them last November that the company would end its fiscal year with more than $2 billion of liquidity.

J.C. Penney burned through billions of dollars of cash last year

J.C. Penney ultimately made good on that promise, ending the year with just over $1.5 billion of cash and $509 million in available credit. Management has also projected that total liquidity will be above $2 billion at the end of 2014. However, J.C. Penney only achieved its 2013 liquidity goal by selling off non-core assets. This may be cause for concern about whether J.C. Penney can meet its liquidity target for 2014 without raising more capital.

Selling everything but the kitchen sink
J.C. Penney's sales of non-core assets did not begin last quarter. In fact, as the company's former management team began to realize that their "transformation" plans were not working smoothly, they began looking for ways to raise cash. Selling off non-core assets was an obvious first step.

In the 2012 fiscal year, J.C. Penney generated $526 million in cash from non-core asset sales. These were primarily real estate assets such as real estate investment trust ownership interests and joint venture stakes in certain malls. Last year, J.C. Penney generated another $143 million in cash from similar transactions.

Of the 2013 asset sales, $56 million came during the fourth quarter. During the quarter, J.C. Penney sold 10 former auto center sites for $25 million. Additionally, the company sold off the rest of its interest in Simon Property Group in December, raising another $31 million in the process.

While $56 million is a paltry sum compared to J.C. Penney's recent losses, it was enough to get the company "over the hump" to meet its liquidity goal. At the end of the 2013 fiscal year, J.C. Penney had about $1.52 billion of cash and $509 million available through its revolving credit line, for a total of $2.02 billion in liquidity.

In other words, without the $56 million in Q4 asset sales, J.C. Penney would have missed yet another financial target. It's possible that J.C. Penney's management was building in asset sales when it provided the target of more than $2 billion in year-end liquidity, but that was never stated explicitly.

J.C. Penney ended FY13 with more inventory than planned

In fact, J.C. Penney ended the quarter with more inventory than planned, and the company's financial results were worse than initially expected. Both of those factors would have hurt J.C. Penney's cash flow. Thus, it seems more likely that J.C. Penney sold off the assets in Q4 in order to rustle up enough cash to meet its target.

Looking ahead
J.C. Penney's cash troubles are not over yet. Management is projecting that J.C. Penney will still have more than $2 billion of liquidity at the end of the fiscal year. However, many of its recent projections have proved aggressive.

Furthermore, like most retailers, J.C. Penney generates much of its cash flow in Q4. As a result, the period of "maximum stress" is the end of Q3 -- not the end of the year. If J.C. Penney winds up on track to miss the $2 billion year-end liquidity target, it could be very short of cash by the end of October, when it needs to stock its stores with holiday merchandise.

If J.C. Penney is able to meet its 2014 financial targets, then fears about the company's potential insolvency will eventually pass. However, the company is skating on thin ice. With relatively few non-core assets left to sell, J.C. Penney might need to sell more debt or stock on unfavorable terms if it runs into any problems while implementing its turnaround plan.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.