The Body Shop Case Essay
The Body Shop Case
The Body Shop Based on our projections for the years 2002-2004, the biggest driver that effects debt is the company’s operating expenses. Based on the history of the upward trend of operating expenses, our recommendation is that The Body Shop needs to concentrate on lowering the operating expenses, and keeping those expenses around 45% or lower in order to avoid borrowing money. Our 45% recommendation includes a safety net which will prevent having The Body Shop borrowing cash if sale do not continue to climb at a significant rate.
Sales For sales from 2001 to 2002, we are projecting a 13% increase because we want to base the same revenue growth as the previous fiscal year. It will take some time for the company to do better like before in the earlier years in sales growth. This increase however, does show improvement for the company as revenue growth hit a downward turn to 8% in the late 1990’s. For sales from 2002 to 2003, we are projecting another 13% increase because again we want to base the same revenue growth as the previous two fiscal years.
Keeping the sales increase at a steady rate would still mean growth for the company at a consistent rate still showing improvements for the company. For sales from 2003 to 2004, we are only projecting a 10% increase because of cutting down on operating expenses. For this year, we plan to close down some of the low revenue shops from the malls in America and from Britain’s shopping streets. Our idea for the future is to go back to our old brand image by not being in the mass-market line as much as in the previous years.
We project that by closing some shops and cutting some of these operating expenses will also lower our sales growth by a small rate. We also project that more and more competition will be out there and selling the same kind of products at that time in the future. Cost of Goods Sold For cost of goods sold (COGS) for each of the following three years, we are projecting that COGS will be 38% of sales. The Body Shop had signed a five year contract with its supplier two years ago saying that the prices of inventory and supplies will remain the same as long as the business would stay with them.
Therefore, the COGS will remain about the same for the next three years and therefore, so will the percentage of sales at 38%. The economy has recently been showing small signs that it will into a depression in the following years. If this was to occur our projection for costs will probably be inaccurate. Because of our contracted pricing we want to be consistent in projecting the COGS even though that it will truly be based on a percentage of sales. Operating Expenses BEING DONE BY ALEXANDRIA
Interest Expense For interest expense for each of the following three years, we are projecting the same percentage of 6% of debt which is the current interest rate. Because of the small signs that the economy is showing that it might go bad, we never know how it will affect interest rates in the future. So we will be consistent in using the current interest rate which is 6%. By using this rate, it will kind of be an average of the rates if interest rates go up and down within the next years.
We do not expect however, for interest rates to go tremendously high or low within the next three years so keeping the rate at 6% would be the best projection at this point. Tax For tax expense for each of the following three years, we are projecting the same percentage of 30% of profit before tax which is the going corporate tax rate in Britain. Because of the small signs that the economy is showing that it might go bad, we never know how it will affect tax rates in the future. So we will be consistent in using the going tax rate in Britain which is 30%.
By using this rate, it will kind of be an average of the rates if tax rates go up and down within the next years. We do not expect however, for tax rates to go tremendously high or low within the next three years so keeping the rate at 30% of profit before tax would be the best projection at this point. Dividends For dividends expense for each of the following three years, we are projecting the same amount of GBP 10. 9 million. This amount was also used for dividends in the previous three years.
Because this amount was correct in projections used for the previous three years, we will again use it for the next three years. This decision is based on past accurateness and the consistency of the company. Current Assets For current assets for each of the following three years, we are projecting the same percentage of 32% of sales. Assets that are constantly flowing in and out of a organization in the normal course of its business as cash converted into goods and then back into cash show small growth if any, in periods of time.
The assets that are expected to last or be in use for less than one year will also show the small growth if any due their usage life expectancy. Because of these facts of our current assets, we will continue to use the projected 32% of sales as in previous years. Because this projection served correctly in previous years, we will again use it for the next three years. This decision is based on past accurateness and the consistency of the company. Current Liabilities
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 25 May 2018