Body Shop International Case Study

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Roddick Wants To Know 1. How did you derive your forecast? Why did you choose the base case assumptions that you did? We looked at the historical financials of the case and recognized that pretax profit was continuing to decline even if sales growth continued to grow by 13%. Utilizing the percentage of sales forecasting method we were able to derive a pro- forma income statement and balance sheet projections. Furthermore, by employing the sensitivity analysis’ we are able to enter various inputs to speculate the effect of cost of goods sold on debt. 2. Based on your pro-forma projections, how much additional financing will The Body Shop need during this period? Based on The Body Shops pro-forma projections the firm will need £2,102,000 in additional financing, if the amount of capital spent on costs to produce and distribute the beauty care products exceeds 45% of sales. However, it would be ill advised to ever exceed 38%, because of the necessity to retain enough cash to cover The Body Shops interest payments, expenses and capital expenditures; plus a little bit more in case of emergencies. 3. What are the three or four most important assumptions or key drivers in this forecast? What is the effect of financing need of varying each of these assumptions up or down from the base case? Intuitively why are these assumptions so important? The four most important assumptions used in this forecast are to enhance The Body Shop brand through a focused product strategy and increased investment in stores; achieve operational efficiencies in the supply chain by reducing product and inventory costs; to reinforce the stakeholder culture, and to keep production costs optimally under 38% with the assumption the growth rate will continue at 13%. Enhancing the Body Shop’s brand can be achieved by building stronger relationships with existing customers,

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