Submitted by: Submitted by koolguy281
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Category: Business and Industry
Date Submitted: 02/26/2011 05:28 PM
Case 8
The Body Shop International PLC 2001:
An Introduction to Financial Modeling
Summary
The Body Shop has experience a recent decline in growth rate from 20% down to 8%. This report will bring to light the areas of the business that may need optimization. In the following pages, we will detail a simple forecast based on reasonably average assumptions, followed by a forecast using more precisely interpolated assumptions. We have also included a sensitivity analysis which will allow us to view the relationships between variables. From our observations, we will describe the best course of action for The Body Shop, from a financial perspective.
Simple Forecasting and Assumptions
In order to analyze large sets of data, initial assumptions must be established. These assumptions regarding The Body Shop’s financial statements are listed below.
Assumptions
Sales: GBP 422.733 million (13% increase over 2001)
Cost of goods sold (COGS): 38% of sales
Operating expenses: 50% of sales
Interest expense: 6% of debt
Tax: 30% of profit before tax
Dividends: 10.9 million
Current assets: 32% of sales
Fixed assets: GBP 110.6 million
Current liabilities: 28% of sales
Common equity: GBP 121.6 million + Retained earnings
Using these assumptions we were able to interpolate the future financial statements seen in Appendix A.
Trend Analysis and Forecasting
In the previous section we created a forecast based on reasonable assumptions. These assumptions however are not an accurate reflection of the past performance of The Body Shop over a period of longer than one year. In order to find more meaningful and specific data, we performed a trend analysis over three years (1999, 2000, 2001). This analysis is portrayed in Appendix B.
The most influential data in Appendix B is the Sales trend. This is due to the fact that many other accounts can be calculated as a percent of sales. With a precise representation of sales growth, we are able...