Abstract
As part of the corporate financial planning process, a firm must quantify the external funds required to achieve a specified growth rate. The additional funds needed (AFN) equation purportedly provides managers with a simple, first-cut way to do so. However, in its traditional specification, the AFN estimate appears to ignore financial feedback effects, potentially undermining its usefulness. This paper restates and simplifies the AFN equation. The new specification reveals that the estimated AFN is not distorted by financial feedback effects and can be used in its unadjusted form as an initial estimate of a firm’s financing needs.
Recommended Citation
(2024)
"The Simplified Additional Funds Needed Equation and Its Implications,"
Journal of Economics and Finance Education: Vol. 23:
Iss.
1, Article 11.
Available at:
https://scholarship.rollins.edu/jefe/vol23/iss1/11
