- Sales Growth (g)
- Capital Intensity (A0*/S0): The amount of assets needed per dollar of sales.
- Spontaneous Liabilities to sales ratio (L0*/S0): The amount of spontaneous liabilities generated reduces the need for outside financing.
- Profit Margin (m=net income/sales)
- Payout Ratio (POR = DPS/EPS): The less income a company distributes to stockholders the less money is needed from external sources.
Self Supporting growth rate: Use Excels goals seek function or
|Baxter Video Products’s sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $3 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter’s additional funds needed for the coming year.|
|Increase in sales||20%||6,000,000|
|After Tax Profit Margin||5%||300000|
|Change in Retained Earnings||15000|
|Additional Assets||-||Accounts payable||-||Accruals||-||Retained Earnings||=||AFN|