Net External Financing
Calculate the net external financing of Bradshaw, Richardson and Sloan (2006): the cash a company raises from shareholders and lenders, net of what it returns to them, scaled by its average total assets.
Bradshaw, Richardson and Sloan show that the net external financing predicts returns negatively: companies that raise the most cash from equity and debt investors earn the lowest returns afterwards, and the relation holds for equity and for debt financing separately. Analysts are also most optimistic about the companies that raise the most financing, which fits the view that companies raise capital when investors overvalue them.
The formula is as follows:
\[\text{Net External Financing} = (\text{Net Equity Financing} + \text{Net Debt Financing}) / \text{Average Total Assets}\] \[\text{Net Equity Financing} = \text{Common and Preferred Stock Issued} - \text{Stock Repurchased} - \text{Dividends Paid}\] \[\text{Net Debt Financing} = \text{Long Term Debt Issued} - \text{Long Term Debt Repaid} + \text{Change in Short Term Debt}\]The flows are those of the cash flow statement and the average total assets the average of the total assets at the start and the end of the window. It is an annual measure, so with quarterly data the flows are those of the trailing twelve months and the total assets are averaged over the start and end of that year by default. Average total assets of zero or less give NaN.
Also known as: XFIN, ΔXFIN, net financing, external financing.
Net External Financing in Python or via the MCP
Install the Finance Toolkit with:
pip install financetoolkit -U
Then call get_net_external_financing as shown below.
from financetoolkit import Toolkit
toolkit = Toolkit(
["AAPL", "MSFT", "KO", "XOM"],
api_key="FINANCIAL_MODELING_PREP_KEY",
start_date="2021-01-01",
end_date="2025-12-31",
)
toolkit.ratios.get_net_external_financing()
Or, after setting up the Finance Toolkit MCP, ask:
How much net external financing did Apple, Microsoft, Coca-Cola and ExxonMobil raise or return, relative to their total assets, from 2021 to 2025?
Which returns:
| 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|
| AAPL | -0.2568 | -0.2966 | -0.2906 | -0.3238 | -0.3165 |
| KO | -0.0708 | -0.0979 | -0.0824 | -0.0694 | -0.0896 |
| MSFT | -0.1447 | -0.1661 | -0.1105 | -0.0789 | -0.0874 |
| XOM | -0.1034 | -0.1054 | -0.0884 | -0.0997 | -0.083 |
Parameters
get_net_external_financing accepts the following parameters.
| Parameter | Type | Description | Example |
|---|---|---|---|
rounding | int | None | The number of decimals to round the results to. Defaults to None, which uses the rounding of the Toolkit (4 unless set otherwise). | 2 |
growth | bool | Whether to calculate the growth of the ratios. Defaults to False. | True |
lag | int | list[int] | The lag to use for the growth calculation. Defaults to 1. | 4 |
compound | bool | Whether the growth is the compound annual growth rate over the lag (e.g. lag=5 for the five-year CAGR) instead of the total change. Defaults to False. | False |
standardize | bool | Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False. | True |
trailing | int | The number of periods to sum the cash flow statement items over, with the total assets averaged over the start and the end of that window. Defaults to None, which uses the trailing twelve months (4 quarters) with quarterly data and single years with annual data. | 4 |