Body Shop Case Study

1. I derived the forecast based on their relationship with sales, so every account in pro forma financial based on relationship with sales. We assume that the growth of sales will go constantly at 13% from 2002 to 2004. This is because the company will begin to implement strategy to enhance the Body Shop brand that will push the company’s sales up, but they need to spend some money because Body Shop will increase their investment in stores. For most accounts, we use the same percentages as the preceding years’ experience. I looked at the 2.1 table for the full account forecast. The base-case assumption chosen is the average of the three years progress of sales because there is not any significant upward or downward trend in the account.

Year 2002 2003 2004

Sales Growth 13% 13% 13%

Cost of Goods Sold 38% 38% 38%

Operating Expenses 50% 50% 50%

Interest Rate 6% 6% 6%

Tax Rate 30% 30% 30%

Dividends 10,900 10,900 10,900

Current Assets 32% 32% 32%

Current Liabilities 28% 28% 28%

Fixed Assets 110,600 110,600 110,600

Starting Equity 121,600 147,029 178,296

2. Based on the result of our projecting financial from 2002-2004, Body Shop should not get an additional financing because they still have excess cash. I looked at table 4 for further information and assessed that;

Year 2002 2003 2004

Trial Assets 245,875 263,460 282,332

Trial Liabilities and Equity 265,395 312,049 367,410

Excess Cash 19,520 48,588 84,078

Debt 0 0 0

3. The four key drivers in the forecast are:

1 – Cost of Sales in 1999 was 42%, in 2000 it was 39.6% and in 2001 it was 39.8%. In the market that Body Shop faces seems to me to be a very intense competition so I made the assumption that Body Shop should maintain Cost of Sales to not go above the 42% mark that is generated in 1999. A reasonable amount would be a range from 39 – 42%. They also need to maintain the sales growth from my opinion 10 – 16%. However, according to my question 1 answer, 13% is a reasonable sales growth.

2 – Net Working Capital should steadily increase throughout the forecast period.

3 – Increasing fixed assets mean that Body Shop are investing in activities. Increasing