Body Shop International Case Summary The Body Shop International case is an interesting case study into the miscommunication of owners and stockholder interests with regard to financial conditions. Anita Roddick, the founder of The Body Shop had no financial experience and thought that all she needed to do was expand her business and the financing would take shape as she developed her business. While Anita’s product concept of a natural skin-care line was good; her lack of experience in financial matters took its toll on her business. The growth expansion of the firm was too rapid and sales, margin and stock prices began to decline as a result. The growth rate quickly declined as competitors such as Bath & Body Works flooded the market. This decrease in market share led to poor decision making by the owner. The Body Shop quickly saturated the market and began to dilute their brand name. It quickly became a mass-market line franchised to every suburban shopping mall and street corner. In 1998, many attempts to strategize the company were employed by both Anita Roddick and Patrick Gourney. Unfortunately, the damage had already been done. Revenues continued to growth; however, pre-tax profits still declined in the years that followed. In 2001, Gourney attempted to reinvent the company and employed several strategies that continued to fail by suggesting increased investment is stores, and attempted to achieve operation efficiencies by reducing product and inventory costs. Case Analysis While analyzing the data for The Body Shop International case, I noticed some trends and have compiled my assumptions for the next three years. I have compiled pro-forma statements for the fiscal years 2002, 2003 & 2004. These figures are based on the percentage of sales method for pro-forma financial modeling. Simply put, I used the sales figures from the past three years 1999, 2000 & 2001 and applied a growth rate of 13% increase to sales. Below are some additional assumptions that I have created to illustrate how the firm can become profitable while increasing market share and maintaining stockholder interest within the firm over the next three years. ASSUMPTIONS 2002 2003 2004 SALES 422,733 477,688 539,788 COGS/SALES 0.38 0.38 0.38 OPERATING EXPENSES/SALES 0.50 0.49 0.48 INTEREST RATE 0.06 0.06 0.06 TAX RATE 0.30 0.30 0.30 DIVIDENDS 10,900 10,900 10,900 CURRENT ASSETS/SALES 0.32 0.34 0.34 CURRENT LIAB/SALES 0.28 0.27 0.27 FIXED ASSETS 110,600 110,600 110,600 STARTING EQUITY 121,600 147,029 181,368 The benefits of these assumptions are that while maintaining the current growth rate of 13%; we can maintain our COGS. One of the major factors contributing to the firm’s poor profit margin is operating expenses.
The company’s return on average equity nearly increased as well; in addition, long-term debt was reduced and stock prices soared. Negative Trends 1. Competitive pricing: Following the low operating costs, operating margin in the can industry dropped by 3% between 1986 -1989 due to; • Production capacity for beverage can increased by 7% in 1989 •
The second part, “Why It Happened: Eighty-Five Years,” explains the origins of the firm and its founding and operating principles, and it sets the basics for why several deviations from these founding principles eventually led the firm astray.
Prior to 2015, the company had already invested money in rebranding purposes in hopes to regain its customer and boost sales. This financial investment did not have good outcomes for the company as everyone had expected. Therefore, Abercrombie needed to demonstrate that its leaders were competent. As a result, more money was invested in hopes that the situation would positively turn around in their favor.
William Evan and Edward Freeman, in their essay “A Stakeholder Theory of the Modern Corporation,” argue that the objective of a company and its managers is not only to maximize profit for its owners and stockholders, but also to balance the benefits received or losses incurred by other stakeholders—employees, suppliers, customers, and the local community, all of whom may be influenced by company decisions. As the owner of MSO, your aim is ostensibly to maximize profits for yourself, but unlike most other indicted CEOs, you have not tried to obtain personal gains at the expense of the stakeholders of your enterprise. Rather, the charges that have been brought against you are for your dealings with another company; in this day and age where investors bemoan the lack of ethics of CEOs who use the power of their position in the boardroom to achieve selfish gains at the expense of their own company and its stakeholders, the charges of insider t...
One of the key issues faced by McGraw is that there is a large gap between his projections for next year, and what the manager’s are promising him . His goal is to obtain a 15% increase in the operating income from his division (OM, LR and NP). The managers are projecting a decrease of 5.2% from the current year. In absolute terms there is a gap of $27 MM in the projected divisions operating income.
Having great financial success throughout his life, Buffet strives to share his wisdom throughout his essay. Some find Buffet’s claims unreasonable and others agree with him. Experiencing similar worries of business failure as Buffet once did, I have come to conclude, like Buffet, that the financial success of a business is much more a function of the type of business in which you enter, than the way in which you try to operate the business.
This did not last long because just a quickly as they rose so did they fall. Within a year their stocks were down to little of nothing, and their name was not one someone wanted to be associated with. The downward spiral can be contributed to the organization culture and improper checks and balances.
Du Pont is organized into ten industrial departments. The department responsible for TiO2, the pigments department, is the second smallest of the ten departments. The revenue for this department in 1971 is $180 million which represent only 4.68% of Du Pont’s revenue. Although there is a considerable risk associated with the growth strategy, the committee is willing to grow this department because it is one of the smallest departments for du Pont, and the company performing so well financially as a whole. This leads us to the conclusion that the growth strategy should be pursued. Du Pont can afford to take a risk on this strategy given the small impact this department has on their associated financials, not to mention that the returns with the growth strategy are superior to the maintain strategy.
Stewart used the overconfidence bias of decision making when releasing multiple products at once, thinking that all would sell like past products had, only to find that customers were unable to buy her products because of the recent downfall in the economy. This caused the company to lose money as their confidence in the products selling outweighed the current economic environment of their key audience.
Currently, Nicholson’s financial history boasts a 2% increase in profit annually but this percentage is way below the industry average of 6%. Cooper management proposed that if Nicholson stops selling to every market, increased efficiencies would result and cut cost of goods sold from 69% of sales to 65%. It was also suggested that the acquisition could lower selling, general, and administrative expenses from 22% of sales to 19%.
Thesis: Businesses deem financing necessary when they are just beginning, expanding, or recovering; Debt financing and equity financning have many advantages and disadvantages but also change the entire accounting method that is to be considered while running the business.
Planning proved to be the first big obstacle to learn in the road to efficient management. Taking care of buying from around the world for her special products had plunged Anita into a frightening and difficult role that she needed help with. Anita organized her financial burdens by taking on an investor Ian McGlinn, in turn giving him a 50 percent stake in the business. Furthermore she sold the name The Body Shop to personal recruits, carefully lead and controlled by her own philosophies and ideals.
These words guided Bob to his riches, until one day he asked Rosalina a question that he had wished he had never spoken. “Rosalina, although you help me with my financial decisions, I am curious to know how my business’ prosperity appears in the years to come.”
During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program that had been proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task.
The rapid development of media and technology in the world market today has helped companies to sell their products and get in touch with their customers more easily (Rayburn, 2012). However the success of a company depends on many factors, not that only whether it has brilliant advertisement or marketing campaigns. The main aim of a company is to create shareholder’s value which according to Bender and Ward (2008), companies have to manage both well in a trading environment and financial environment in order to do that. Hence, the financial strategy can be seen as one of the most important factors in contributing to the business’s success especially to a large company such as Unilever as it is all about strategic decisions related to raising and manage the funds in the most appropriate manner.