Question

In 200 words or more answer the following:

As a manager of this firm, what two strategies you would use to eliminate the need for external financing. Please provide actual dollar amounts to your analysis.

Joshua & White Technologies: 2018 AFN Analysis (Thousands of Dollars)
AFN Analysis	2018	Delta
Sales +10%	$462,000
Assets	$417,624.9	$37,965.90
COL	$50,820.0	$4,620.0
Profit	$44,220.00
Dividends	$19,937.50
Retained Earnings		$24,282.50
AFN		$9,063.40

Joshua & White Technologies: December 31 Balance Sheet

(Thousands of Dollars)

Assets	2017	2016
Cash and cash equivalents	$21,000	$20,000
Short-term investments	3,759	3,240
Accounts Receivable	52,500	48,000
Inventories	84,000	56,000
Total Current assets	$161,259	$127,240
Net fixed assets	218,400	200,000
Total assets	$379,659	$327,240

Liabilities and equity	2017	2016
Accounts payable	$33,600	$32,000
Accruals	12,600	12,000
Notes Payable	19,929	6,480
Total current liabilities	$66,129	$50,480
Long-term debt	67,662	58,320
Total liabilities	$133,791	$108,800
Common stock	183,793	178,440
Retained Earnings	62,075	40,000
Total common equity	$245,868	$218,440
Total liabilities and equity	$379,659	$327,240

Joshua & White Technologies: December 31 Income Statements

(Thousands of Dollars)

	2017	2016
Sales	$420,000	$400,000
COGS except excluding depr. and amort.	300,000	298,000
Depreciation and Amortization	19,660	18,000
Other operating expenses	27,600	22,000
EBIT	$72,740	$62,000
Interest Expense	5,740	4,460
EBT	$67,000	$57,540
Taxes (40%)	26,800	23,016
Net Income	$40,200	$34,524
Common dividends	$18,125	$17,262
Addition to retained earnings	$22,075	$17,262

Other Data	2017	2016
Year-end Stock Price	$90.00	$96.00
# of shares (Thousands)	4,052	4,000
Lease payment (Thousands of Dollars)	$20,000	$20,000
Sinking fund payment (Thousands of Dollars)	$5,000	$5,000

Answer 1

The two ways that I would use to eliminate external financing is by:

1. Increasing the retained earnings. The business can eliminate the entire dividend and keep all of its earnings for long term growth prospects. The investors of the company can be informed about the plans for expansion and good use of cash. They can be shown that non payment of dividend helps in getting a better capital appreciation over the long term through increased compounded annual growth rate (CAGR). Once the investors are convinced about this, they would not wait for dividends. Businesses like Berkshire Hathaway never pay dividends. In this manner the business can convince the shareholder about the new no-divided policy and keep all of its earnings and hence there will not be a need to external financing

2. Internal financing: Instead of going to public to raise the debt or equity, the firm can raise the money internally. The firm can look at various departments within the organization which are profitable. The firm can raise money from other departments within the organization to fulfil the need of financing. Through internal financing, the firm can borrow money from within the organization instead of financial institutions and also a lower interest rate.