"When EFN (External Financing Needed, aka AFN) is negative, it indicates that the company is holding excessive money than that is needed. When company is merely holding the surplus of money is often as bad as holding the surplus of debt. It is because money laying unused creates opportunity costs, so the firm should use it to clear high interest debt, to repurchase shares, or to increase dividends."

The statement above is basically wrong for two reasons:

1) Why is the AFN not about "holding"?

2) Why is the AFN not about "money"?

Answer rating: 100% (QA)

The statement provided contains inaccuracies regarding the concept of External Financing Needed EFN ... View the full answer