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Introduction

Identifying funds required to support the forecasted sales level of a firm is fundamental to the forecasting process and is referred to as external financing needs (EFN) (Business Finance Online, 2019). The need to engage in external financing is primarily dependent upon future sales growth, length of cash cycle, future profitability and profit retention (Kritsonis, 2005). Careful analysis of Apples balance and income statements over several years time can be used to estimate the dollar amount, timing and duration of future EFN and provide insight into which long-term or short-term sources are more profitable (Kritsonis, 2005).

Step 5: Future External Financing Needs

External financing choices are determined by the needs and preferences of a company and by the options available (eFinanceManagement, 2019). This largely depends on Apples ability to project a credible and transparent financing proposal, the nature of the business plan and risk factors involved during implementation (eFinanceManagement, 2019). The consolidated balance sheets contained within Apples annual financial reports can be used to determine the estimated future EFN of the company in any given year. This is calculated by subtracting the total liabilities from the total assets (Zutter & Smart, 2019). Utilizing this information, it can be deduced that Apples estimated EFN were as follows:

• 2015 $119,355,000 (Figure 3.0)
• 2016 $128,249,000 (Figure 3.1)
• 2017 $134,047,000 (Figure 3.2)
• 2018 $107,147,000 (Figure 3.3a & b)

Apples current capital structure reflects that the company is primarily financed through equity, which is at 9.1% and roughly eight times higher than the companys long-term debt (Weber, 2016). Cost of equity depends on expected returns, equity risk premium and the beta of the shares of the company (Weber, 2016). This current imbalance implies that when new capital is required to fund future projects, Apple should seek to issue new debt (e.g., buy back as many shares of common stock as possible) to balance out the debt-to-equity ratio (Weber, 2016). This has not been a problem for the industry leader since the company consistently generates more capital than it needs and Apple has recently repurchased shares to increase debt, lower dividend payments and increase earnings per share (Weber, 2016).

Step 6: Access to Target Sources of External Finance

External sources of capital within a business include both long-term and short-term sources and come from outside the business (Figure 3.4) (Weber, 2016). Over the last three years, Apple has issued over $2.5 billion in green bonds, the proceeds of which the company plans to use to finance renewable energy, Apple facility energy efficiency and in the companys supply chain and procurement of safer materials for its products (Reuters, 2017). Apples target sources for external financing also include, but are not limited to Apple shares, debt markets, public equity markets.

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