It’s crucial to determine whether your business needs external financing or not while making a financing decision. Your needs for external financing may vary based on your business variables. However, you can calculate it by using a formula, but our External Financing Needed (EFN) Calculator automates it.
What is Financing Needed (EFN)?
The External Financing Needed (EFN), also called Additional Funds Needed (AFN), calculates how much outside funding a company will require to support a planned growth or increase in sales. Examples of this funding include loans and the issuance of new equity.
To determine how much outside funding your company might require, just enter its financial information, including sales, asset ratios, profit margin, and dividend payout ratio. The calculator will immediately indicate whether your business needs more money or has extra cash on hand for debt repayment or investments.
Key idea:
EFN calculates the amount of extra money a business needs to raise from outside sources (creditors or investors) after taking into account: internal increase in liabilities and assets, and retained earnings.
The company requires outside funding if EFN > 0. The company has extra money if EFN is less than zero.
Why should you calculate the EFN?
EFN indicates the amount that must be borrowed from outside sources if a company’s internal resources (retained earnings and other liabilities) are not enough to pay for the assets needed for expansion.
The Significance of EFN aids in projecting future financial needs, helps with budgeting and financial planning determines if there will be a funding surplus or shortfall for the company. helps determine whether to borrow money, issue equity, or implement retained earnings policies.