Finance

AFN Calculator (Additional Funds Needed)

Estimate external financing needed to support sales growth using the percent-of-sales method.

Current Sales (S₀) ($)

Projected Sales (S₁) ($)

Total Assets ($)

Spontaneous Liabilities ($)

Profit Margin (%)

Retention Ratio (b) (%)

% of earnings retained (not paid as dividends)

AFN Formula:
AFN = (A*/S₀)×ΔS − (L*/S₀)×ΔS − PM×S₁×b
Where A* = assets tied to sales, L* = spontaneous liabilities
ΔS = S₁ − S₀, PM = profit margin, b = retention ratio

Understanding AFN

The AFN equation determines how much external financing (debt or equity) a company needs to fund its growth. As sales increase, assets must grow too — but some of this is funded internally through retained profits and spontaneous liability increases.

The Three Components

Required Asset Increase: (A*/S₀) × ΔS — more sales need more assets
Spontaneous Liability Increase: (L*/S₀) × ΔS — accounts payable and accruals grow automatically
Internal Financing: PM × S₁ × b — profits retained in the business

If AFN is negative, the company generates more internal funds than needed — it can pay down debt or increase dividends.