Enter the projected increase in assets, spontaneous increase in liabilities, and increase in retained earnings to determine the AFN.

## AFN Formula

The following formula is used to calculate the additional funds needed.

AFN = IA - IL - IRE
• Where AFN is the additional funds needed ($) • IA is the increase in assets ($)
• IL is the increase in liabilities ($) • IRE is the increase in retained earnings ($)

To calculate additional funds needed subtract the increase in liabilities and increase in retained earnings from the increase in assets.

## AFN Definition

What is AFN?

AFN stands for additional funds needed. It is a term used in business and finance to describe the additional resources (“funds”) needed for a company to expand it’s operations to hand increases in assets.

At it’s core, AFN is a way of understanding how liabilities will grow relative to assets and sales.

When computinjg AFN, if the value is negative, then the project should generate extra income for the company.

## Example Problem

How to calculate AFN?

1. First, determine the expected increase in assets.

For this example, the total increase in asssets is expected to be $50,000.00 2. Next, determine the expected increase in liabilities. The total increase in liabilities is found to be$20,000.00 for this project.

3. Next, determine the increase in retained earnings.

The retained earnings will increase by $40,000.00 if this project is implemented. 4. Finally, calculat the additiona funds needed for the operations. Using the formula above, the AFN is calculated to be: AFN = IA – IL – IR AFN =$50,000 – $20,000 –$40,000
AFN = -\$10,000.00