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# Case Study

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THE BODY SHOP INTERNATIONAL PLC2001:
AN INTRODUCTION TO FINANCIAL MODELING

QUESTION 1.

The Body Shop International used to be one of the most successful companies in the late 1990s. However, it has become more difficult to stay in new environments with the entry of new competitors which led to revenue grew by 13 percent and the decline in pretax profit of 21 percent was observed in 2001. As it turned out later the main mistake was that there was lack of forecasting.
We as a consulting group are going to analyze company and calculate three years forecast using company’s financial statements from the year 1999-2001. Our case study assumptions are going to be based on the following main objectives, set by Patrick Gournay:
1. Increase investments in stores
2. Reduce inventory and product costs
We are going to use “percent-of-sales” forecasting method which means calculating sales in 2002 and then forecast other accounts based on the assumptions and their direct relationship with sales. We used this type of forecasting due to the lack of information (there are only 3 years of available data and this lack of information). Information on the calculations for each account individually is to be given further in the next section.
SALES: For this number we took just a historical average of the three years growth. The reason why we took the historical averages for the majority of accounts is that we cannot predict the factors that are likely to be in the future. Therefore, the average of various figures is the best way to connect future factors with the past. The growth rate of sales in 1990 was 20%. However in 2000 the sales grew by 8.7%. As it was mentioned before this trend is largely due to increased competition. In 2001 sales grew by 13.3. Therefore, it is highly unlikely to say that in 2002 growth will still stay at 20% as the firm has already reached its maturity phase in the business cycle. The sales are expected to grow at 11 percent in 2002, 2003, 2004....

• Submitted by: zmuk3873
• on April 26, 2012
• Length: 3,219 words
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