External financing needed
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The Manning Company has financial statements as shown (attached) which are representative of the company's historical average.
The firm is expecting a 20 percent increase in sales next year and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.
Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement)
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Solution Summary
The solution explains how to calculate the amount of external financing needed using the percent of sales method
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Manning Company
External financing needed = Increase in assets - increase in spontaneous liabilities - increase in retained ...
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