1. Financing surplus

if additional financing is greater than additional assets.

2. Eliminate the financing deficit or surplus: (via Flexible Financial Account)

If deficit, draw on a line of credit. The line of credit would be tapped on the last day of the year, so it would create no additional interest expenses for that year.

If surplus, eliminate it by paying a special dividend.

3. *Alternatives to Drawing on LOC:

Cut dividends.

Add long-term debt.

Issue common stock.

Cut back on growth in operating plan.

Improve operating plan.

windfall tax break

4. Forecasting Financial Statements: The Basic Approach

Forecast the operating items (e.g., sales, costs, inventory, etc.)

Choose a preliminary financial policy and use it to forecast the financial items (e.g., long-term debt, interest expense, etc.)

Identify any financing surplus or deficit and eliminate it

Repeat until satisfied that the plan is achievable and is the best possible

5. Introduction phase

New firms need capital but may be constrained to issue debt
Likely to balance the balance sheet by issuing equity.
start-up firms commonly hold the cash raised from issuing equity in liquid accounts until investing in growth-related assets

6. Growth phase

Growing firms are more likely to meet their capital needs by issuing debt or equity capital

7. Mature and Decline phases

Maturing firms capital needs are more likely to be met with cash flow from operations
Maturing firms should return capital to stakeholders paying dividends, buying back stock, or paying down debt. Would not expect heavy debt issuance

8. All firms carry some debt (tax benefits, depreciation that they can claim) after certain point (maxed out benefits) would not expect mature firms to have

debt