Mega Stores is a chain of 125 retail outlets selling clothing under the strong Mega brand. Its sales have increased from \($185\) million to \($586\) million over the last five years. The company’s gross profit is currently 17% of sales, giving it a little more than 20% mark-up on the cost of goods and retail store running costs. Corporate overhead is

\($19\) million and the operating profit is \($81\) million.

Mega Stores’ finance director has produced a budget, which has been approved by the board of directors, to increase sales by 35% next year and to improve operating profit margin to 15% of sales. Corporate overhead costs will be contained at \($22\) million.

The marketing director's strategy is to continue expanding the company’s sales by winning market share from competitors and by increasing the volume of sales to existing customers. It aims to increase its direct mailing of catalogues to customers and its television advertising. The company also intends to open new stores to extend its geographic coverage.

Mega Stores also plans to improve its cost-effectiveness by continuing its investments in major regional warehouses and distribution facilities servicing its national network of stores, together with upgrading its information systems to reduce inventory and delivery lead times to its retail network.

a. Produce a report for the senior management team identifying the financial information that is required to support the business strategy.

b. Identify any non-financial issues arising from the strategy.