External financing needs can be calculated by subtracting the addition to retained earnings and an increase in spontaneous financing from a firm's change in assets.

Question

Quizplus · Accepted Answer

External financing needs are determined by the firm's increase in assets to support growth, minus any increase in spontaneous financing (like accounts payable or accruals that naturally increase with sales) and minus any addition to retained earnings (which is internal financing). This calculation shows how much additional financing the firm needs from external sources.

External Financing Needs Can Be Calculated by Subtracting the Addition