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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:


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?


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).