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Calculating External Financing Needs from Financials

Please see the attached problem.

EFN: The most recent financial statements for Martin, Inc., are shown here:

INCOME STATEMENT BALANCE SHEET

Sales $19,200 Assets $93,000 Debt $20,400

Costs $15550 Equity $72,600

Taxable income $ 3,650 Total $93,000 Total $93,000

Taxes (34%) 1,241

Net income $2,409

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $963.60 was paid, and Martin wishes to maintain a constant payout ratio. Next year's sales are projected to be $23,040. What is the external financing needed?

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Solution Preview

See the attached spreadsheet. I've worked step by step to try to explain how this works.

Basically, you'll see that the EFN formula is as follows:

EFN=(Expected Total Assets)-(Expected Total Liabilities)
Expected total assets are easy to calculate as they are said to be a constant percentage of sales.
Last year, sales were $19,200 and assets ...

Solution Summary

External funds needed by a firm are calculated based upon the given financials (income statement and balance sheet).

$2.19