Computation of Additional Funds needed
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Sales are expected to increase from $5 million in 2004 to $6 million in 2005, or by 20 percent. The company's assets totaled $3 million at the end of 2004. The company is at full capacity, so its assets must grow at the same rate as projected sales. At the end of of 2004, current liabilities were $1 million, consisting of $250,000 accounts payable, $500,000 notes payable, and $250,000 of accruals. The after tax profit margin is forecasted to be 5 percent, and the forecasted payout ration is 70 percent. What would be the additional funds needed for the coming year?
What would be the additional funds needed if the company's year-end 2004 assets had been $4 million? Assume that all other numbers stayed the same. Why is this AFN different? Is the company's capital intensity the same or different?
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This explains the concept and computation of Additional funds needed.
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The operating plan provides detailed implementation guidance designed to accomplish corporate objectives. It details who is responsible for what particular function, and when specific tasks are to be accomplished. The financial plan details the financial aspects of the corporation's operating plan. In addition to an analysis of the firm's current financial condition, the financial plan normally includes a sales forecast, the capital budget, the cash budget, pro forma financial statements, and the external financing plan. A sales forecast is merely the forecast of unit and dollar sales ...
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