Finance bored the pants off me. I fell asleep more times than not.1

—Anita Roddick, founder, The Body Shop International

In the late 1990s, The Body Shop International PLC, previously one of the fastest growing manufacturer-retailers in the world, ran aground. Although the firm had an annual revenue growth rate of 20% in the early to middle 1990s, by the late 1990s, revenue growth slowed to around 8%. New retailers of the naturally based skin- and hair-care products entered the market, bringing intense competition for The Body Shop. Amidst the competition, The Body Shop failed to maintain its brand image by becoming something of a mass-market line as it
1 2

Anita Roddick, Body and Soul (London: Ebury Press, 1991), 105. Jean
In either case, you are preparing a pro forma, or projected, income statement and balance sheet for The Body Shop for 2002 (income statement for the entire year and balance sheet for year-end). All values should be in British pounds (GBP). Use the following assumptions as a guide:

Do

Sales:

Cost of goods sold (COGS): 38% of sales Operating expenses: Interest expense: 50% of sales 6% of debt (about the current interest rate)

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No tC

The most widely used approach is a hybrid of these two. For instance, T-accounts are used to estimate shareholders’ equity and fixed assets. Percentage-of-sales is used to estimate income statements, current assets, and current liabilities, because these latter items may credibly vary with sales. Other items will vary as a percentage of accounts other than sales. Tax expense will usually be a percentage of pretax income, while dividends will vary with after-tax income, and depreciation will usually vary with gross fixed assets.

GBP422.733 million (a 13% increase over 2001)

op

Percentage-of-sales forecasting: This method starts with a forecast of sales and then estimates other financial statement accounts based on some presumed relationship between sales and that account. While simple to execute, this technique is easily misused. For instance, some naive analysts may