Two approaches to external financing needs estimation in financial planning
Two approaches to external financing needs estimation in financial planning

Summary/Abstract: The paper deals with two basic approaches to external financing needs estimation in a company. The article puts emphasis on the comparison of the alternative methods. In the first part of the article, the traditional method based on the projected financial statement was described. The most important steps of the procedure were elaborated on and the ratio analysis was taken into account. The second part of the paper explains a simplified approach based on the additional funds needed formula. The basic assumption of this formula was depicted with the assumption that additional funds needed constitute a difference between the increase in assets and the increase in short-term liabilities as well as retained earnings. Finally, the two approaches were explained and compared by means of a case study and both advantages and disadvantages of the methods were described.

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