Suppose a firm forecasts sales growth larger than its sustainable growth rate,but plans to add fewer assets than the current asset to sales ratio implies.If other aspects of the firm's performance remain constant,the pro forma external funds required (EFR)

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If a firm plans to add fewer assets than the current asset to sales ratio implies, it is indicating that it plans to increase its asset turnover ratio. This means that the firm expects to generate more sales with the same level of assets than it previously did. As a result, the firm will need fewer external funds to support its sales growth than it would if it maintained its current asset to sales ratio. Therefore, the pro forma external funds required (EFR) will likely be smaller than the sustainable growth rate implies.

Suppose a Firm Forecasts Sales Growth Larger Than Its Sustainable