May 3, 2015
Long-Term Financial Needs
Determining long term financial needs can be important because they allow the finance section of an organization layout the future expenses for the next year. Pro forma balance sheets detail the projected funds required for the following year. There are also year-end ratios that must be calculated to determine the health of the organization. This financial report will also include how the numbers were obtained for each of the ratios and whether or not the organization will require external funds. There assumptions for the pro forma sheet will be retrieved from the New Strategic Directions Memo.
EFN is known as external financing needed and this is required when the organization does not have enough funds to cover long-term obligations. External financing can be raised by the organization usually by issuing securities. Once the pro forma balance sheet is created it can be determined that external funds are not needed. To obtain the EFN the EFN would equal total assets –total liabilities and equity. After calculating this for Huffman Trucking, it is determined that there will not be a need to raise external funds because they have the required funding in their projections.
There are several ratios that are used to help project the status of Huffman Trucking in the coming year. There are ratios like the current ratio; asset ratio and profit as a percentage of sales that can help determine where the company stands. Gross profit is typically given as profit as a percentage of sales and gross profit is the profit minus the cost to make and sell a product or service. To determine the gross profit, you take the revenue and subtract the cost of goods or services. The current ratio measures the firm’s ability to meet its short-term obligations (Gitman, 2009). To get the current ratio, the total current assets from the balance
References: Gitman, L.J. (2009). Principles of Managerial Finance (12th ed.). : Prentice Hall.