The Body Shop International PLC 2001: An Introduction to Financial Modeling The following graph presents the forecast for the Body Shop’s income statement and balance sheet in 2002 to 2004:
How did you derive your forecast? Why did you choose the “base case” assumptions that you did? The forecast takes into considerations the stated business objectives of the Body Shop as well as trends or patterns in the historical financial statement in exhibit 8. Further information on the calculations and assumptions underlying the forecast is to be explained for each account individually in the following section: Assumptions related to the sales growth, expenses and earnings parameters Sales growth: Given the Body Shop’s growth level of 20% in the early 1990’s and its newly implemented strategy, it is assumed that the Body Shop will be able to sustain a relatively high growth rate in the future years, however the Body it will not be able to generate sales growth at the early 1990’s level due to increased competition in the market. In 2000 the sales increased by 8.7 % and in 2001 it increased by 13.3% The Body Shop’s sales are forecasted to increase by 11 % per year in 2002, 2003 and 2004. Thus, it is assumed that the past years trend of increasing sales growth will continue until 2004, however at a steady rate of 11 % per year, which is the average of the past two years growth rate. Cost of Goods Sold (COGS): It is assumed that the cost of goods sold will stay at a constant level in the forecast for 2002 - 2004. It is estimated as a weighted average of the COGS/Sales-ratios in 1999, 2000 and 2001 equal to 40.5 %. Operating expenses: Exceptional costs and restructuring costs: Since the Body Shop’s business strategy includes achieving operational efficiency in its supply chain it is assumed that the Body Shop will also have exceptional costs and restructuring costs in 2002 to 2004 as a consequence of the desired goal to achieve efficiency improvements in its supply chain....
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