Formula of external financing demand: external financing demand = increase in operating income × percentage of sales of operating assets-increase in operating income × percentage of sales of operating liabilities-available financial assets-estimated sales × estimated net operating interest rate ×( 1- estimated dividend rate)
External financing demand = increased sensitive assets-increased sensitive liabilities-increased retained earnings. Sensitive assets are mainly operating assets and assets that change in direct proportion to sales revenue. Such as cash, inventory and accounts receivable. Sensitive liabilities refer to short-term operating liabilities that change with sales revenue, and liabilities that change directly with sales revenue, including accounts payable.
External financing demand = increased assets-increased operating liabilities-increased retained earnings.
1, increased assets = incremental income × percentage of sensitive assets in base period sales+increase of non-sensitive assets.
Or = sensitive assets in the base period × estimated sales revenue growth rate+increase in non-sensitive assets.
2. Increased operating liabilities = incremental income × sensitive liabilities as a percentage of base period sales.
Or = sensitive liabilities in base period × estimated growth rate of sales revenue.
Increased retained earnings = estimated sales revenue × net sales rate × profit retention rate
3. Increased retained earnings = expected sales revenue × net sales rate × profit retention rate.
External financing demand refers to the amount of funds that need to be raised from the capital market through financial activities by using the operating liabilities, available financial assets and retained earnings spontaneously increased within the company, and after the increase of operating assets meets some sources of funds.
The demand for external funds for company expansion is roughly equal to the balance of its total capital demand minus the increase of natural liabilities and retained earnings. What needs to be emphasized here is that although depreciation is an important internal source of funds for the company and has great flexibility in use, the ultimate goal of depreciation is to restore depreciated assets, so the source of new funds cannot be depreciation.