EFN Define the following:
|
S |
=Previous year’s sales |
|
A |
=Total assets |
|
D |
=Total debt |
|
E |
=Total equity |
|
g |
=Projected growth in sales |
|
PM |
=Profit margin |
|
b |
=Retention (plowback) ratio |
Show that EFN can be written as:
EFN = PM(S)b +(A PM(S)b) ×g
Hint: Asset needs will equal A×g. The addition to retained earnings will equal PM(S)b ×(1 + g).