In this case it also has the option of going to the market and raising the equity. But that depends a lot on the market conditions.
From the table it is quite clear that the firm had grown during the initial phase of two years and there after the growth more or less stopped. The average method of forecasting the growth says that the company will grow next year by 10.4%. However this may or may not be true considering the fact that during the previous two years there had been no growth. Hence let us assume here that the firm grows by 5% in the next year.
Let us consider the financial results of the company PZ Cusson for the year 2004-05. Suppose that the turnover of the company is predicted to increase by 5% in the next year. Let us consider the profit and loss statement of the company and see what will be effect of increase in turnover by 5% on various parameters.
As mentioned earlier as there is increase in the turnover there is increase in the cost of production also. More raw materials will be required and there may be increase in the labors also to meet the increased demands. To meet these extra requirements the company needs to increase it assets.
Now the shortfall can be compensated from the profit retained by the company, but in that case we had assumed that the interest rate remains unchanged. Hence we have to later find if the extra money will really be required from the market.
If a firm is growing it is likely to need extra assets but, equally, it will be generating extra liabilities. The shortfall of 5483 between the assets and the liabilities is