External Funding Needed Calculator

Formula

The formula to calculate the External Funding Needed (EFN) is:

\[ EFN = \left( \frac{A}{S} \right) \Delta S + \left( \frac{L}{S} \right) \Delta S - M (1 + RR) (S1 - S) - AFN \]

Where:

$ EFN $ is the External Funding Needed ($)
$ \frac{A}{S} $ is the assets to sales ratio
$ \Delta S $ is the change in sales
$ \frac{L}{S} $ is the spontaneous liabilities to sales ratio
$ M $ is the profit margin
$ RR $ is the retention ratio
$ S1 $ is the projected sales
$ S $ is the current sales
$ AFN $ is the available funds from operations

What is External Funding Needed (EFN)?

External Funding Needed (EFN) is a financial concept that calculates the amount of additional funding a company needs to sustain its level of operations, given its current financial structure. It is determined by examining the company’s projected growth rate, current assets, liabilities, and retained earnings. If the EFN is positive, it indicates that the company needs to secure additional financing, either through debt, equity, or a combination of both. If the EFN is negative, it means the company has excess funds that can be used for investment or to pay off existing debt.

Example Calculation

Let's assume the following values:

Assets to Sales Ratio (A/S) = 0.5
Change in Sales (ΔS) = $100,000
Spontaneous Liabilities to Sales Ratio (L/S) = 0.2
Profit Margin (M) = 0.1
Retention Ratio (RR) = 0.5
Projected Sales (S1) = $1,200,000
Current Sales (S) = $1,000,000
Available Funds from Operations (AFN) = $50,000

Using the formula to calculate the External Funding Needed:

\[ EFN = (0.5 \times 100,000) + (0.2 \times 100,000) - (0.1 \times (1 + 0.5) \times (1,200,000 - 1,000,000)) - 50,000 = 50,000 + 20,000 - 30,000 - 50,000 = -10,000 \]

The External Funding Needed is -$10,000, indicating that the company has excess funds.