The target capital structure method manages the priority of the category surpluses and deficits in each of up to three funding categories. When using the target capital structure, you specify a target debt capacity and, if needed, a target preferred capacity for your planning entity.
Funding options enable you to specify the order of funding accounts to achieve target category levels. For example, borrowing or repayments on a revolver to meet the targeted debt capacity. Based on these forecasts and based on available funds in the forecast, Strategic Finance applies surpluses and funds deficits in the funding category based on your funding category priorities.
Sample Company has had a successful year. Cash flow from Operations was $220 million. The total capital has increased from $1.4 billion to $1.5 billion. To maintain approximately 35% debt-to-total capital ratio, you increase debt by $35 million. If there are no forecasted increases in the debt accounts, this amount represents a deficit in the debt-funding category. It is funded according to the entries in the Fund Cash Deficits with... list.