Body Shop Case

This report examines how much additional debt that Body Shop plc will need to grow by performing a forecast through the use of financial modeling. Moreover, Body Shop plc’s pretax profit dropped by 21 percent notwithstanding the 13% revenue growth in 2001 and the major reason would be lack of forecasting through the use of financial modeling. Therefore by looking ahead its company financial performance under the change of strategy through conducting a forecast in this report, it is believed that better decisions and financial performance could be achieved.

Percent- of sales forecasting was adopted due to the limited availability of Body Shop Plc’s financial information. This forecast was conducted based on the historical statements of Body Shop Plc from 1999 to 2001. In this method, a forecast of sales is conducted initially then forecasts of other financial statement account are conducted based on the assumed relationship with sales. Therefore, accounts in the pro forma financial statement are inferred by the key assumptions of their relationship with sales which are listed as follow.

Key assumptions

1. Sales

Assumption of 11% steady growth rate every year was made based on the historical average due to the reasons given as follow.

Despite the failure of maintaining brand image that Body Shop becomes mass market line may need to lower price charge thus lower sales, however its expansion on the other hand might stimulate sales. Moreover, the new implemented strategy is to enhance brand image therefore assume the strategy is successfully implemented, higher price could be charged with the expansion of stores, it is expected that sales growth will be high therefore it is expected that 15 % sales growth could be achived in 2003Therefore, it is expected that sales will grow gradually in the near future.

2. Cost of Sales

41 percent cost of sales to sales was assumed initially calculated by its historical average. Considering Gournay’ strategy of...