Task: Equivalency of the External Funds Needed (EFN) equation and pro-formas:
Assume sales are projected to rise by 20% for the year 2003. Net profit margin on sales and dividend payout ratios will remain constant. The only assets that are spontaneous (rise proportionally with sales) are current assets, and the only liabilities that are spontaneous (rise proportionally with sales) are current liabilities.
Q1. Use the EFN equation to generate an estimate of the amount of additional, external funding the firm will require in 2003
Q2. Develop pro-forma income statements and balance sheets for the year 2003. Your pro-formas should show only the same accounts shown above (they obviously do not need to be detailed). Clearly show the plug number which makes your pro-forma balance sheet balance.
Q3. Compare the plug number in part (b) with the EFN estimate in part (a).