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THE BODY SHOP: FINANCIAL MODELS
Financial models are tools that are built to forecast the company’s financial performance in the future.Therefore, financial modelling involves aprocess of constructing a representation of the state of finance of the company in the real- world. Financial models are mathematical models and they are created to represent financial assets’ performance. The financial forecast is usually based on the historical performance of the company. It requires the financial analyst to make use of the cash flow statements, income statements, balance sheet, and other supporting schedules. The body shop has provided some historical financial statements which can be used to forecast. The financial
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It is founded on the argument that income statements and financial position ofaccounts change with sales. Sales forecast is the key determinant of the method of percentage of sales. Based on this method, financial statements of Pro-Forma can beprepared. In addition, the Body Shop will be able to identify external financial need (EFN). In this method, the first step is usually the expression of the income statements and balance sheet accounts which differ directly with change in sales. The Body shop company will do this by dividing the balance for the accounts for (2001) by sales revenue for the current year (2001). In the Body Shop balance sheet, the accounts which are generally tied with sales are cash (calculated as 3.7%), inventories (calculated as 13.7%),and net fixed assets (calculated as 29.6%), other current assets (calculated as 4.7%),accounts receivables (calculated as 8.1%), other assets (calculated as 1.8%), and accounts payable (which is 2.9%).The overdrafts, other current liabilities, and long-term liabilities are not tied with sales directly. The change that result in these accounts depends on the method Body Shop decides to employ in raising the required amount of cash to sustain the sales growth as forecasted. For income statements, costs are also expressed as the percentage of sales. The assumption in this case is that all costs remain at a sales percentage that is fixed. The cost of sales …show more content…
To achieve this goal, it prepares projected cash flow statement, balance sheet, and projected income statement. These projected financial statement are called pro forma. The Pro forma income statements provides a budget for the operation of the company. They can help to determine whether the expenses thatare expected to rise or fall. It can also be used to project the profit of the company. The pro forma financial statements are like the historical financial statements but now projecting the future.The Pro forma will help the Body Shop calculate its projected financial
1. Using the historical data as a guide, construct a pro forma (forecasted) profit and loss statement
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial
The process requires Peyton Approved to discover how much inventory is sold and what the cost of goods will result in. The process requires the business to review three forms of merchandise inventory to determine which summary benefits the business’s operational behavior. One will discover when assuming that first inventory purchased by the store is the first to be sold, it is determined that the FIFO method displays the best financial outcome for the business. During the process of updating journal entries, one must enter the information proved appropriately into the T-accounts to add the balance under each record. Once the T-accounts for transactions and adjusted transactions are balanced, the next step is to enter the information provided on the balance sheet. The balance sheet will list Peyton Approved assets, liabilities and stockholders equity after added during the T-account process (Nobles, 2014). Once the balance sheet is completed the income statement, statement of retained earnings, and closing entries can be filled with the information proved. This will give the business a full review from journal entry to closing entries of the business for the six month accounting
This course focuses on ways in which financial statements reflect business operations and emphasizes use of financial statements in the decision-making process. The course encompasses all business forms and various sectors such as merchandising, manufacturing and service. Students make extensive use of spreadsheet applications to analyze accounting records and financial statements. Prerequisites: COMP100 and MATH114 / 4-4
Pro forma is similar in many ways to a historical income statement; however, it projects the future rather than tracking the past. I used the pro forma statements a lot in determining growth decisions to see what the financial effects would be in the future. In Quarter 4 they were very useful because I wanted to increase my sales force from 14 sales people to 24 sales people.
In comparing the two processes the percentage of sales method is simplified and accurate way of determining losses, but both are acceptable. The percentage of sales directly impacts the income statement where the percentage of receivables affects balance sheet. The percentage of sales having the direct impact on the income statement
One of the most important parts of a business is the financial management. Each and every other company always strives to have the best management when it comes to its finances. Most organizations have come up with plans and marketing strategies. This is due to the fact tat when companies finances are poorly managed then definitely the whole company is likely to be in trouble or even come down. The financial techniques and principles in most cases comprise of quite a number of aspect for instance those that we intend to look at in this paper-the financial reporting. This will basically comprise of the quality of data and information that the company produced to some of the various stakeholders. Other than that, the paper will also analyze the financial position and performance of the organization using accounting ratios. Another important aspect of financial principles is costing. This basically entails the cost of producing goods and services in the company and how it generally affects the overall performance of the company. The paper will also delve into how important costs in the pricing strategy of the business are. It will further come up with a costing and pricing system that can help the company improve. Last but not least, we focus on the company's budgets and budgetary control. Here there are very important areas that have to be looked into, for
Pro-Forma Financial Statements (I/S, B/S and Statement of Cash Flows) with deltas out three years and analysis
Using the assumptions given in the case, all elements of income statement and balance sheet can be projected for next three years 2010, 2011 and 2012. Sales cycle of the products of the company is such that sales of a particular product increases initially for few years and then starts to decline as the new
Pro-forma income statement to illustrate interest and dividend payment ability is based on various assumptions as shown in Exhibit 1. Expected cases are the measures used in the following discussion. Conservatism is adopted throughout the assumptions especially sales growth rate, credit rating and Medicaid penalty assumptions.
6. A pro forma income statement analysis that includes a forecast of revenue for the coming year, major cost and expense categories, earnings, earnings per share, and dividends. Rely on your own forecast. Do not base your analysis on a sales or earnings forecast from a secondary source such as Value Line.
The word pro forma is a Latin term meaning “as a matter of form”. Looking at its meaning in business, financial statements are a main focus. Business pro formas are prepared in advance of a planned transaction. The pro forma statement illustrates projected earnings if a company were to sell off parts of its operation, merge with another company, or beginning a new venture. When a performance statement is used a company is able to
The firm’s accounts receivable ratio increased from 68.71 in 2006 to 74.56 in 2010. This means that it is taking Abbott almost six days longer to collect from its customers today than it did five years ago. Furthermore, the firm’s accounts payable days has decreased from 43.72 in 2006 to 38.22 in 2010. This means that Abbott is paying its suppliers 5½ days earlier today than it did in 2006. A change in the inventory ratio from 8.01 in 2006 to 11.03 in 2010 indicates that it is taking the firm longer to sell finished goods than it used to. The increase in the accounts receivable and inventory ratios, combined with a decrease in the accounts payable ratio, indicates poor working capital management and helps to explain why the firm has increased its holdings of cash and short-term investments. To correct this, Abbott’s managers should focus on collecting cash from its customers faster and delaying payments to its suppliers. To maximize its cash position, the firm would be best served by paying its suppliers in the same amount of time as it collects payment from its customers.
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
The purpose of this assignment is to study the finance sources available to a company. Here according to the assignment requirement, we have to select a British public company to study the available sources of finance from where the firm collects its capital requirement. Following the guidelines we have to analyze various sources with their potentiality and then we make viable analysis of Cash and sales budget. Here some salient financial ratios are employed for the purpose of analyzing the financial statement of the company.