Finance Report: Vitamin Shoppe Inc. Overseas Operations and Risks

This finance report analyzes the potential benefits and risks associated with Vitamin Shoppe Inc.'s shift of operations overseas, specifically to China. The report assesses political and economic risks, considering the current trade tensions and economic conditions in both the US and China. It includes a free cash flow analysis, calculating the intrinsic value of the company's shares based on projected growth rates and discount rates. Additionally, the report examines key financial ratios from the past two years to evaluate the company's debt, profitability, and liquidity, highlighting the importance of managing inventory levels. The conclusion emphasizes the potential for increased revenue and improved share price through overseas operations. References include academic research on financial analysis and manufacturing in China.

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Finance
Name of the Student:
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Table of Contents
Introduction:....................................................................................................................................2
Shift of Operating Facility:..............................................................................................................2
Political Risk:...................................................................................................................................2
Economic Risk:................................................................................................................................3
Data Analysis used for making business decisions:........................................................................3
Financial ratios:...............................................................................................................................4
Conclusion:......................................................................................................................................5
References and Bibliography:..........................................................................................................6

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Introduction:
The aim of the assessment is to transfer the overall operations of Vitamin Shoppe Inc.
from the current operations to overseas for increasing the level of profits by reducing the total
cost involved in production. The company is involved in producing nutritional Supplements to
generate high level of income from operations. Hence, the shift in the options of the organisation
overseas would eventually help the company to minimise their production cost and maximise the
level of income. Furthermore, relevant calculation is mainly conducted for detecting the political
risk, and economic risk of changing the operations of the organisation.
Shift of Operating Facility:
Country: China
Province: Guangzhou
Political Risk:
There is certain political risk involved in the operations of Vitamin Shoppe Inc., as the
company operated in USA, where certain tension with China is brewing. The clash with the
Chinese government and US government has initiated a trade war, which is negatively affecting
the overall operations of the organisation in China. However, the expenses incurred by
companies in China are considered to be exponentially lower than the production cost in US.
This has motivated maximum of the manufactures to shift their production in Chian and reduce
their production cost in total (Zhang, Skitmore & Peng, 2014).

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Economic Risk:
The current economic risk in US is relevantly lower, as the measures taken by the current
government are boosting the sales and share value of organisation in the capital market.
Moreover, the economic conditions of China are also boosting, which will allow the company to
smoothly conduct their production operations in the country and minimise the level of risk
involved in foreign investment. The economic risk is relevantly low for Vitamin Shoppe Inc.,
which can help in generating high level of income.
Data Analysis used for making business decisions:
Free Cash Flow Estimate
2016 2017 2018
Net cash from Operating Activities 93,373.0 56,189.0 90,147.0 (0.40) 0.60
Capital Expenditures 40,068.0 55,020.0 28,138.0
Free Cash Flow (FCF) 53,305.0 1,169.0 62,009.0
3 Year Average Free Cash flow 38,827.7
Inputs Cash flow & Present Value Table
Number of years considered 5 Sl No Year Cash flow PV of Cash flow
FCF Growth rate for first 5 years 10% 1 2019 42,829.29 37,569.56
Terminal Growth Rate 2.00% 2 2020 47,243.33 36,352.21
Discount Rate 14% 3 2021 52,112.29 35,174.31
4 2022 57,483.04 34,034.58
Intrinsic Value Calculation 5 2023 63,407.31 32,931.77
Total PV of cash flow 455,982.48
Total Debt 105,797.00 Terminal Year 2,023.00
Cash & Cash Balance 2,668.00 Terminal Value 538,962.16
Net Debt 103,129.00 PV of Terminal Value 279,920.06
Share Capital 23,496,841.00
Face Value (INR) 1.00
Number of Shares 23,496,841
Share Price 15.02
The above calculations has mainly indicates that the overall share price valuation of the
organisation in future 5 years’ time, which could be attained after changing the operations to
abroad. The change in production process would eventually allow the organisation to minimise

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their expenses, which in turn could increase the growth factors and have positive impact on its
share price. The overall FCF growth rations assumed to be at the levels of 10%, while the
terminal growth rate after the 5 year period is considered to be at 12%. In addition, the discount
rate taken into consideration is 14%, which is used for detecting the future cash values of the
organisation. From the relevant calculation, it has been detected that the estimated share price is
at the levels of 15.02, which is anticipated for with the help of DCF method. Lieder & Rashid
(2016) stated that with the help of DCF method the investors are able to detect the future price of
an organisation.
Financial ratios:
Financial ratios 2018 2017
Debt ratio 0.14 0.26
Debt to equity ratio 0.30 0.65
Profitability
ratios 2018 2017
Net margin -0.34% -21.99%
Gross margin 31.84% 31.62%
Liquidity ratio 2018 2017
Current ratio 2.08 2.22
Quick ratio 0.29 0.50
The above financial ratio is calculation of the past two financial years of Vitamin Shoppe
Inc., which can help in detecting the low financial performance of the company. The overall debt
conditions of the organisation have mainly improved over the period, where the debt
accumulation has declined. This is a major attribute for the organisation, as it is minimising the
finance cost incurred in their income statement. However, profitability conditions of the

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organisation have mainly improved, while the company still incurs loss. The changes in
operational conditions of the organisation would eventually help in boosting its share price and
reduce the level of risk involved in investment. The high inventory level maintained by the
organisation is mainly problematic, where maximum of the company’s resources are being
blocked. Therefore, the change in the options could eventually allow the organisation to maintain
adequate level of current assets to support its financial obligations during short duration’s
without hampering their fixed assets (Investors.vitaminshoppe.com, 2019).
Conclusion:
The above assessment helps in detecting the improvements in the financial performance
of Vitamin Shoppe Inc. would incur after changing the location for the operations. The shift on
production unit to China would be beneficial for the organisation, as it would substantially
reduce the level of expenses in their operations. This could allow the company to boost their
revenues and in turn support future operations. In addition, the improvements in the share price
are anticipated with the help of DCF method, where with the anticipated growth the company
would boost its share price to the level of 15.02.

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References and Bibliography:
Hou, G., Sun, H., Jiang, Z., Pan, Z., Wang, Y., Zhang, X., ... & Yao, Q. (2016). Life cycle
assessment of grid-connected photovoltaic power generation from crystalline silicon solar
modules in China. Applied Energy, 164, 882-890.
Investors.vitaminshoppe.com. (2019). The Vitamin Shoppe InvestorRoom. Retrieved 5 May
2019, from http://investors.vitaminshoppe.com/annual-reports?item=229
Lieder, M., & Rashid, A. (2016). Towards circular economy implementation: a comprehensive
review in context of manufacturing industry. Journal of cleaner production, 115, 36-51.
Qian, F., Zhong, W., & Du, W. (2017). Fundamental theories and key technologies for smart and
optimal manufacturing in the process industry. Engineering, 3(2), 154-160.
Qian, T. T., Dong, L. I. U., Tian, X. J., Liu, C. M., & Wang, H. M. (2014). Microstructure of
TA2/TA15 graded structural material by laser additive manufacturing
process. Transactions of Nonferrous Metals Society of China, 24(9), 2729-2736.
Zhang, X., Skitmore, M., & Peng, Y. (2014). Exploring the challenges to industrialized
residential building in China. Habitat International, 41, 176-184.