The Additional Funds Needed Equation AFN can be intuitively

The Additional Funds Needed Equation (AFN) can be \"intuitively interpreted\" as \"Outside Funds Needed = Assets I need to support the sales increase - Spontaneous Increases in Accounts Payable and Accruals - Additions to Retained Earnings\". True or false?

Solution

True,

Explanation: AFN equation = A0 x change in sales/current sales – L0 x change in sales/current sales – S1 x PM x b

Here, A0 = current level of assets

L0 = Current level of liabilities

S1 = new level of sales

PM = profit margin

b = retention ratio