How to Calculate EFN for a Pro Forma Balance Sheet

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Calculate EFN, or external financing needed, by starting with the percentage increase in revenue for the following year, determining the increase in assets and subtracting the increase in liabilities. Consult a financial analyst to calculate a business EFN with tips from a certified public accountant and personal financial planner in this free video on finance.

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Video Transcript

Hi. I'm Miranda Chook, a CPA. EFN or external financing needed is a way of estimating additional funds a company may need to raise to support a forecast increase in revenues. The theory goes like this; usually budgets start with some percentage increase in revenues for the following year. This equation or model will take that increase in revenues and calculate the increase in assets that's needed to support the increase in revenues. And it will subtract the resulting increase in liabilities and increase in retained earnings. You're result is EFN, external financing needed. Now where that will show up in the balance sheet depends on the type of financing that's raised. If you gotten a bank loan or some other debt, you'll see that EFN in the liability section. If you've raised capital or some other kind of equity instrument, you'll see that EFN in the capital or share holders equity section. So, please work with an experienced financial analyst to see how this would work in your specific circumstances.

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