Question: When the percent-of-sales method (constant ratio method) is used in financial forecasting, certain balance sheet items are assumed to maintain a constant percent relation with

  1. When the percent-of-sales method (constant ratio method) is used in financial forecasting, certain balance sheet items are assumed to maintain a constant percent relation with sales. What are those items?
  2. External funding requirement is determined by the growth in spontaneous assets minus the growth in spontaneous liabilities and current earnings retained (change in R/E)
  3. If spontaneous assets (cash, marketable securities, inventory, accounts receivable) decrease, how will a firm's need for external funds be affected? (increase or decrease?

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