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As part of financial planning for an organization, being able to determine the amount of Additional...

As part of financial planning for an organization, being able to determine the amount of Additional Funds Needed (AFN) by an organization to achieve its growth goals is an important part of this financial forecasting. Please explain what we mean by AFN, the sources of funds, and how an organization goes about determining its AFN.

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Expert Solution

Additional funds needed are very important for a business in order to proactively estimate the amount of the fund which will be needed by business in order of expansion of the company and in order of growth of the company to help the business in order to maximize the profit of the company so that the overall shareholders value could be maximized.

additional funds needed will be calculated by the company by keeping into perspective its current increase in assets as well as increase in liabilities along with changes in the retained earning so it is needed to be proactively judge the additional fund required in order to help the company to to adjust to the required changes in the the future to help in achievement of goals.

Sources of funds could be from equity markets or it can either from Debt markets or it can be through retained earning as well so it will have to be adequately balanced in order to maximize the benefits.

Additional fund needed can be determined by the formula-

Additional fund needed=[Required asset increase- Required liability increase-increase in retained earnings]

jeff jeffy answered 1 year ago
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