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FMA-III 2 of 3: External Funding Needs Calculation Process (Essay Sample)

Explain the process to calculate external funding needs and the importance to a business. Your response should be at least 250 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations. Course Textbook Lasher, W. R. (2011). Practical financial management (6th ed.). Mason, OH: South-Western.  Chapter 10: Capital Budgeting source..

External Funding Needs Calculation Process
Corporate managers are likely to face the challenge of calculating the sum of financing needed. The capital markets have great complexities and determining the amount of external financing that ought to be raised is difficult. The sum of external financing that an organization requires relies upon the operating budget for the business and the capital current resources of the company. It is worth developing a firm operating budget for companies will make determination of external financing amount easier. A particular process is applicable when calculating external funding requirements, which is significant to any business.
The external funding needed is used in determining the sum of external funding which a company would require depending on the alteration in values of balance sheet from a certain year to the other. The calculation process starts by projecting the sum of sales expected to be generated by the company, by using the annual growth of sales over the immediate recent period of five years (Lasher, 2011). Calculations for the cost of sold goods in the company as well as operating expenses employing the standard percentage of sales technique. Moreover, the subtraction of the operating expenses and cost of the sold goods is performed from the sales to decide pre-tax income. The company’s taxes for the following year are then calculated, subtracting taxes from the pre-tax income in order to work out the net income. Projection of the current assets of the following year is important in this process, using the similar percentage of sale technique.
The current assets comprises of inventory, cash and receivable accounts. The following year’s current liabilities are also projected using historical cost percentage of the goods sold. The current liabilities are subtracted from the current assets, to establish the working capital needs of the company. The projected capit...
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