Question

Brandywine Clinic (a not-for-profit provider) has the following balance sheet (in millions): Cash $20 Accounts payable $20 Receivables 20 Notes payable 40 Inventory 20 Long-term debt 80 Plant/Equipment 180 Equity (fund) capital 100 Total assets $240 Total claims $240 Revenues for the past year were $400, and fixed assets were used at 100 percent of capacity. Revenues are expected to grow by 10 percent in the coming year, and the clinic is expected to have a 5 percent profit margin. What is the clinic’s forecasted external financing requirement (in millions)?

Answer 1

External Funds Needed = (A0/S0*(S1-S0)) - (L0/S0*(S1-S0)) - (PM*S1*b)

where

Ao - Assets (at time 0) which vary directly with Sales = 240 millions

Lo - Liabilities (at time 0) which vary directly with Sales=20 millions ( Accounts payable)

So - Current Sales = 400 millions

S1 - Projected Sales = 400 millions *1.1 = 440 millions

b - Retention ratio = 100% (as the clinic is a not-for-profit provider)

PM - Profit Margin = 5%

External Funds Needed = (240/400*(440-400)) - (20/400*(440-400)) - (.05*440*1)

= 24-2-22

= 0 millions