How does Ziegen, Inc. determine its financing needs according to the three-step approach outlined in the chapter?

Ziegen, Inc. determines its financing needs using a three-step approach: first, it forecasts revenues; second, it prepares pro forma financial statements to estimate the assets required to support those revenues; and third, it estimates the firm's financing needs by comparing the projected assets to available financing sources.

The three-step approach begins with a revenue forecast, where Ziegen anticipates its sales for the upcoming period. Next, pro forma financial statements are prepared using the percent-of-sales method to determine the necessary investment in current and fixed assets based on the projected sales. Finally, Ziegen estimates its financing needs by assessing the total assets required and subtracting the financing available from spontaneous sources like accounts payable and accrued expenses, as well as retained earnings, to identify any additional discretionary financing needed.