FINANCIAL

MANAGEMENT
JASON SANTOS, MBA
FM4
1. AFN
1. Definition
2. Formula
3. Example Problem
4. Problem
Additional funds needed (AFN) is the amount of money a
company must raise from external sources to finance the
increase in assets required to support increased level of sales.
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. In response to
an increase in sales, a company must increase its assets, such as
property, plant and equipment, inventories, accounts receivable,
etc. Part of this increase in offset by spontaneous increase in
liabilities such as accounts payable, taxes, etc., and part is offset
by increase in retained earnings
PROBLEM
A business has the following balance sheet

Current Assets ₱125,000.00 Accounts Payable ₱12,000.00

Net Fixed Assets ₱300,000.00 Accruals ₱10,000.00

Long Term Debt ₱225,000.00

Common Equity ₱178,000.00

Total Assets ₱425,000.00 Total Liabilities and Equity ₱425,000.00

All assets are fully utilized. Both assets and spontaneous liabilities will grow at the same rate
as sales. Next year, you expect sales to increase by 20%. You also expect to retain php 30,000
of next year's earnings within the firm.
Current Assets ₱150,000.00 Accounts Payable ₱14,400.00

Net Fixed Assets ₱360,000.00 Accruals ₱12,000.00

Long Term Debt ₱225,000.00

Common Equity ₱208,000.00

Total Liabilities and
Total Assets ₱510,000.00 Equity ₱459,400.00

AFN ₱50,600.00
ACTIVITY
Current Assets ₱750,000.00 Accounts Payable ₱75,000.00
Net Fixed Assets ₱500,000.00 Accruals ₱65,000.00
Long Term Debt ₱550,000.00
Common Equity ₱560,000.00
Total Assets ₱1,250,000.00 Total Liabilities and Equity ₱1,250,000.00

All assets are fully utilized. Both assets and spontaneous liabilities will grow at the same
rate as sales. Next year, you expect sales to increase by 30%. You also expect to retain
₱ 100,000 of next year's earnings within the firm.