The External Financing Needed Calculator is a valuable financial tool that helps businesses and individuals determine the amount of external financing required for a specific financial period. External financing, in this context, refers to the funds that need to be raised from external sources to support a company’s operations and growth.
Formula
The formula for calculating the External Financing Needed (EFN) is as follows:
EFN = (A – L) – (SE – RE)
Where:
- EFN: External Financing Needed
- A: Projected Total Assets
- L: Projected Total Liabilities
- SE: Beginning Shareholder’s Equity (Equity at the beginning of the period)
- RE: Retained Earnings (Net Income – Dividends)
In simple terms, EFN represents the difference between a company’s projected assets and projected liabilities, minus the change in shareholder’s equity.
General Terms and Calculator
| Term | Description |
|---|---|
| Total Assets (A) | The total value of a company’s assets. |
| Total Liabilities (L) | The total value of a company’s liabilities. |
| Shareholder’s Equity (SE) | The value of equity at the beginning of the financial period. |
| Retained Earnings (RE) | The earnings retained by the company, calculated as Net Income – Dividends. |
Now, let’s provide you with an easy-to-use calculator for External Financing Needed:
External Financing Needed Calculator
This calculator will help you quickly and accurately calculate the EFN for your financial analysis, saving you the time and effort of manual calculations.
Example
Let’s walk through a simple example to illustrate how the External Financing Needed Calculator works. Suppose a company has projected total assets of $500,000, total liabilities of $300,000, beginning shareholder’s equity of $150,000, and retained earnings of $50,000.
Using the EFN formula:
EFN = ($500,000 – $300,000) – ($150,000 – $50,000) = $100,000
In this example, the company would need external financing of $100,000 to meet its financial obligations and investment plans.
Most Common FAQs
EFN is crucial for businesses to assess their financial health and funding requirements. It helps in planning for growth, managing debt, and making informed financial decisions.
You can reduce your EFN by increasing profits, improving operational efficiency, and optimizing your capital structure. Managing expenses and increasing revenue can also help lower the need for external financing.
While EFN is commonly used in the corporate finance context, individuals can also apply it to personal financial planning, especially when making significant investments or purchasing assets.