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Suppose you constructed a pro forma balance sheet for a company and the estimate for external...

Suppose you constructed a pro forma balance sheet for a company and the estimate for external financing required was negative. How would you interpret this result?

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Answer #1

External financial requirement is additional money that we borrow from out side the company based on the financial requirement of the company. External financing is required to pump the desired level of activity of the company incase it lacks financial assistance.

External financial requirement is calculated as follows

External Financing = Total Assets -(Owners equity + Liabities)

if we get a negative figure means  (Owners equity + Liabities) > Total assets

ie the firm has excess cash than the requirement for its use.

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