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 (\$)

## 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