## What are the two methods to determine additional financial requirements?

Two Short-Term Financial Planning Methods.

**What is AFN method?**

AFN is a way of calculating how much new funding will be required, so that the firm can realistically look at whether or not they will be able to generate the additional funding and therefore be able to achieve the higher sales level. Determining the amount of external funding needed is a key part of calculating AFN.

### What is the EFN formula?

The complete formula (EFN) is expressed as: EFN = (A/S) x (Δ Sales) – (L/S) x (Δ Sales) – (PM x FS x (1-d)) A / S: Assets that change given a change in sales, expressed as a percentage of sales.

**Which of the following best defines the term additional funds needed AFN?**

The term “additional funds needed (AFN)” is generally defined as: Funds that a firm must raise externally from non-spontaneous sources, i.e., through borrowing or by selling new stock, to support operations.

#### How do you calculate discretionary financing?

The following is the correct formula for predicting discretionary financing needs: Projected (total assets + liabilities + owner’s equity). Projected (total assets – liabilities + owner’s equity).

**What affects AFN?**

Higher profit margin Decrease AFN: Higher profits, more retained earnings.

## What is Plowback?

The plowback ratio is a fundamental analysis ratio that measures how much earnings are retained after dividends are paid out. It is most often referred to as the retention ratio. The opposite metric, measuring how much in dividends are paid out as a percentage of earnings, is known as the payout ratio.

**How is NWC calculated?**

Net working capital = current assets (less cash) – current liabilities (less debt)

### When we use the AFN equation to forecast the additional funds needed we are implicitly assuming that all financial ratios are constant?

When we use the AFN formula to forecast the additional funds needed, we are implicitly assuming that all financial ratios are constant. This means, for example, that if you plotted a graph of inventories versus sales, the regression line would be linear and would have a positive (non zero) Y-intercept.

**Which of the following decreases the AFN?**

#### Which is the correct formula for net discretionary cash flows?

To calculate discretionary cash flow, start with the company’s pre-tax earnings. Next, add back in all non-operating expenses and subtract non-operating income. Add any nonrecurring expenses, and subtract nonrecurring (one-time) income. Add depreciation and amortization expenses.

**What are the differences between discretionary and non-discretionary cash flows provide two examples of each?**

Non-discretionary spending is essential and non-negotiable spending defined within a budget. What are Non-Discretionary examples? Examples of these expenses include: rent, food, or mortgage payments. In contrast, discretionary spending refers to non-essential expenses, such as hobbies and travel.

## What are the four standards for comparisons in financial analysis?

Liquidity, margins, rate of return, and profitability can be assessed using these ratios.

**How do two companies compare current ratios?**

Current Ratio Formula = Current Assets / Current Liablities. If, for a company, current assets are $200 million and current liability is $100 million, then the ratio will be = $200/$100 = 2.0….Current Ratio Formula.

Current Assets | Current Liabilities |
---|---|

Office supplies | Current Portion of Long term debt |

### How do you calculate retention Plowback ratio?

One method to calculate the plowback ratio is to subtract common and preferred dividends from net income, and then divide the difference by net income. After dividends for the period have been paid out to shareholders, the residual profits are called retained earnings, i.e. net income minus dividend distributions.

**How do you calculate internal growth rate?**

Internal Growth Rate Formula

- IGR = (Retained Earnings ÷ Net Income) × (Net Income ÷ Total Assets)
- IGR = Retention Ratio × ROA.

#### What is the difference between net working capital and working capital?

Net working capital (NWC) is sometimes shortened to working capital, but both mean the same thing. This term refers to the difference between a company’s current assets and its current liabilities, as listed on the balance sheet. Current assets include items such as cash, accounts receivable, and inventory items.

**How do you calculate AFN in accounting?**

Subtract the projected spontaneous increase in liabilities and the projected increase in retained earnings from the projected increase required in sales. This is represents the AFN.

## What are the advantages and disadvantages of the AFN equation?

The equation method also permits quick recalculation of AFN with changes in the assumptions, and in addition, other variables in the equation can be readily solved for given a target AFN. The AFN equation has several potential disadvantages. First, it ignores economies of scale in asset utilization.

**What is the additional funds needed (AFN) formula?**

One useful tool to businesses in need is the forecasting model provided by the Additional Funds Needed (AFN) formula. The AFN formula projects additional funds required next year for a business to remain viable.

### What does AFN stand for?

Additional funds needed (AFN) is also called external financing needed. Additional funds needed method of financial planning assumes that the company’s financial ratios do not change.