The Body Shop Case

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 structure and dividend policy have been made which can have a significant impact on the outcome of the projects and the management actions associated with it. The company is currently facing a situation where it cannot drive its sales growth without adversely affecting the bottom line. The reduction in bottom line for the year is acceptable if it is a result of investments in fixed assets which support additional capacity or to implement a strategic marketing plan for higher future sales. Based on the analyses of the pro forma statements and sensitivity analysis of key relationships explored, we have come to a conclusion that the company can sustain operations without any need for external financing if they limit their sales growth and cogs/sales ratio at 15% and 0.35 respectively. That would require the management to further take some cost reduction initiatives necessary to meet that objective. Also discussed in the results section is the effect of the company’s dividend policy and inventory management on their need for external funding.

2. Introduction / Background
The Body Shop International PLC was one of the fastest growing manufacturer-retailers in the world; however in the late 1990s it lost market share. The firm had