1. Executive Summary This report presents an analysis of The Body Shop PLC’s pro forma financials from 2002-2004 and insights into financial requirements for the company as it moves forward with their new strategies for achieving operational efficiencies and reclaim its brand image as a top manufacturer-retailer in the beauty and personal care industry. We have constructed pro forma financial statements based on the sales-driven estimates and interest and tax fixed burdens. The key determining factors to the accuracy of these projections are the assumptions made about revenue growth and the sales-driven accounts like cost of goods sold, current assets (viz., inventory). Also, assumptions about the company’s capital budgeting …show more content…
With that information we conducted a sensitivity analysis and ratio analysis of different scenarios the company may face to demonstrate their affect on the company’s financials. Each step is further explained, along with flow charts and diagrams, to better understand our methodology.
Income Statement For our pro forma, we first began with the income statement. To determine Sales, we assumed an increase at a consistent rate each year. COGS and operating expenses were estimated as a percentage of Sales. Exceptional Costs and Restructuring Costs were not considered since pro forma statements exclude unusual and nonrecurring transactions. With these figures, we were able to determine our Profit Before Tax (PBT). For our tax expense, we assumed a constant tax rate. By subtracting the Tax Expense from our PBT we determined the Profit/(loss) After Tax. Lastly, we subtracted dividends, which remained unchanged each year, from the Profit/(loss) After Tax to find the company’s Retained Earnings. Below is a diagram illustrating these steps:
Balance Sheet
For our balance sheet, we began by adding together all of The Body Shop’s assets. This included Cash, Accounts Receivable, Inventories, Other Current Assets, Other Assets and Net Fixed Assets. All Current and Fixed Assets were calculated with percentage-of-sales forecasting. For Liabilities and Shareholders’ Equity,
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