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

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## 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?

**First, determine the expected increase in assets.**For this example, the total increase in asssets is expected to be $50,000.00

**Next, determine the expected increase in liabilities.**The total increase in liabilities is found to be $20,000.00 for this project.

**Next, determine the increase in retained earnings.**The retained earnings will increase by $40,000.00 if this project is implemented.

**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