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# Calculating External Financing Needs from Financials

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?

#### 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