87

10 Monitoring and Evaluating

Business Operations
Quarter 4- WEEK 1
ENTREPRENEURSHIP
Entrepreneurship – Grade 10
Quarter 4 – Module 1
Monitoring and Assessing Business Operations

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Published by the Department of Education - Region III

Secretary : Leonor M Briones
Undersecretary : Analyn M. Sevilla
Assistant Secretary : Alberto T. Escobarte

Development Team of the Module

Author : Myla O. Mapoy

Language Reviewer: Maricel R. Valenzuela
Content Editor : Carmencita M. Santiago
Illustrator : Paul Melvin I. Glean
Layout Artist : Danica Mae P. Domingo

Management Team:

Gregorio C. Quinto, Jr., EdD

Chief, Curriculum Implementation Division

Rainelda M. Blanco, PhD

Education Program Supervisor - LRMDS

Agnes R. Bernardo, PhD

EPS-Division ADM Coordinator

Joel I. Vasallo, PhD

EPS – Technology and Livelihood Education

Glenda S. Constantino
Project Development Officer II

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Librarian II

Department of Education, Schools Division of Bulacan

Curriculum Implementation Division
Learning Resource Management and Development System (LRMDS)
Capitol Compound, Guinhawa St., City of Malolos, Bulacan
Entrepreneurship – Grade 10
Supplementary Learning Resource
 10

Quarter 4
Monitoring and Evaluating
Business Operations

Quarter 4- WEEK 1

LESSON 1: Monitoring and Assessing Business Operations

 This module focuses on monitoring and evaluating business operations.
You will be guided on how to use tools and methods for supervising/monitoring
and evaluating business operations. When you are already familiar with the
tools and methods, the last part of your lesson will be on reporting results of
monitoring and evaluation you conducted.
 What I Know
A. MULTIPLE CHOICE:
Direction: Answer the questions honestly. Write the letter of your choice in your quiz notebook.

1. In any business, which of the following statements applies to purchase and sales receipts?
a. Purchase receipts show what you have ordered from others while sales receipts show the value of
goods received from others.
b. Purchase receipts show what you have purchased form others and sales receipts show what others
have purchased from you.
c. Purchase receipts show the items that others have purchased from you and sales receipts show
what you have purchased from others.
d. Purchase receipts show what others have ordered from you and sales receipts show the value of the
goods you purchased from others.

2. Which of the following statements best explains the most important reason why businesses use
checking accounts?
a. to gain tremendous prestige for entrepreneurs
b. to secure interest on the balance in the account
c. to provide a good record of payments
d. to enhance the quality of correspondence

3. Choose one of the following statements to indicate how the inventory card is related to the purchase
receipt and the sales receipt.
a. Many of the purchase receipts would involve adding inventory; sales receipts would be subtractions
from inventory.
b. Many of the purchase receipts would involve subtracting from inventory; sales receipts would be
additions to inventory.
c. Both the purchase and sales receipts would involve adding to inventory because they represent the
same transaction.
d. Both the purchase and sales receipts would involve subtracting from inventory because they
represent the same transaction.

4. The difference between the accounts receivable and accounts payable cards can best be explained
by which of the following statements?
a. Accounts receivable show your cash sales, while accounts payable show which customer owes
you money.
b. Accounts receivable show your credit sales, while accounts payable show which customer owes
you money.
c. Accounts receivable show the customers who owe you money, and the accounts payable show
the vendors to whom you owe money.
d. Accounts receivable show the vendors who owe you money, and the accounts payable show the
customers who owe you money.
5. According to the cash method, what do you need to determine the amount of profit for a particular
period?
a. accounts receivable card and the check book deposits and checks.
b. accounts payable card and inventory record.
c. deposits, revenue, checks written for expenses and service charges.
d. inventory record and checkbook deposits.

6. One of the best ways to determine whether you have made a good profit is to:
a. set a goal at the beginning of the year and compare your profit to that goal.
b. compare your rate of return on the business to the return which could be gained by using your
resources in alternative ways.
c. compare your profit to the 15% benchmark. If your return is over that amount, you are doing well.
d. compare your return from your business against your savings at a local bank.

7. Businesses that only sell services do not maintain inventory records because:
a. tracking the movements of items would be necessary.
b. there is no goods to track
c. inventory records are time consuming for services.
d. only one inventory record is needed.
8. In a business, two items that you must withhold from their wages or salaries are: (Choose two letters.)
 a. Income Tax b. SSS or GSIS c. hospitalization d. scholarship

9. Which of the following activities is the best example of a controlling function of management?
a. deciding the amount/type of supplies to be ordered
b. telling employees about their specific responsibilities
c. putting in a time-clock for employees.
d. writing checks to make payments.

10. Prices are determined by:

a. cost of production and market demand c. city regulations; laws and business
b. banks, as part of loan agreements d. the Central Bank of the Philippines

11. Indicate an example of a typical fixed cost.

a. cost of supplies to make an item c. profit
b. rent d. mailing cost of items sold.

12. There are a number of factors to consider when relating to your customers. Which of the following is
it.
a. informing your customer of returns of your merchandise.
b. knowing your product/service
c. telling customers whatever it takes to make them feel good.
d. trying to provide all products that your customer may want.

13. Which of the following types of financial information would a potential investor want to see in a
business plan?
a. start-up cost b. projected revenue c. break-even point d. all of the these

14. In SWOT analysis, there are forces such as inflation and unemployment rates, which are to be
considered as external environment where opportunities and threats abound. Which one is it?
a. economic forces c. political forces
b. societal forces d. technological forces

15. An essential analytical tool for business which compares the Total Revenue and the Total cost is…
a. Break – Even Graph c. Break – Even Analysis
b. Break –Even Point d. Break – Even Point Sales Volume

This module contains information and suggested learning activities used in

assessing business operations.
In business operations, assessment is very important. It consists of finance and
accounting, internal auditing, buying of materials, supplies, and equipment; facilities and
risks management and other activities needed to complete the cycle. As a student
entrepreneur, it is necessary that you are familiar with all the records used in the
operations such financial records and reports. You will need this in gauging whether the
business is earning or not.
This module consists of three learning outcomes, each learning outcome contains
learning activities with instruction sheets. Before following the instructions, read the
information sheets and answer the self-check activities provided so that your teacher will
be able to assess your competence. He/she will check if you have acquired the
knowledge necessary to perform the skills portion of the particular learning outcome.
 At the end of the module you should be able to:
1. identify the different tools used in monitoring and evaluating business
operations;
2. apply methods in monitoring and evaluating business operations;
3.prepare written and oral report based on the results of the monitoring and
evaluation conducted.

WORDS TO STUDY
Accountability is the obligation of an individual, firm, or institution account for its
activities, accept responsibility for them and to disclose the results in a
transparent manner.

Accounting is a systematic process of identifying, recording, measuring, classifying,

verifying, summarizing, interpreting and communicating financial information

Asset is something valuable that an enterprise owns, benefits from, or has use of, in
generating income. In accounting, an asset is something an entity has acquired
or purchased, and which has money value (its cost, book value, market value,
or residual value

Budget is the estimate of costs, revenues, and resources over a specified period,
reflecting a management's reading of future financial conditions. One of the
most important administrative tools, a budget serves also as a plan of action for
achieving quantified objectives, standard for measuring performance, and
device for coping with anticipated adverse situations.

Business operations consists of handling money and recording day to – day

transactions, computations, buying of materials and supplies, and checking of
facilities

Equity is the right to an asset or property, held by a creditor or a business owner.

Evaluation deals with measuring business operations variable based on identified

criteria.

Liability are the accounts and wages payable, accrued rent and taxes, trade debt, and
short and long-term loans. Owners' equity also is termed a liability
because it is an obligation of the firm to its owners.

Procurement is a complete process of obtaining goods and services from preparation

and processing of a requisition to receipt and approval of the invoice for
payment.
Finance deals with matters related to money and the markets.

Monitoring is supervising activities in progress to ensure they are on-course

and on-schedule in meeting the objectives performance targets.

I. Supervising and Monitoring Business Operations

A. Supervising and Monitoring

To ensure the successful operation of the

business you need to monitor. This can be done
Why?
through supervision. Proper supervision will
enable you to assess and support the production
performance, follow schedule and utilize
material and work force wisely.

To effectively and efficiently monitor the

What? business operations, the student-enterprise
owner needs to be familiar with specific skills
and techniques. You may seek advice from your
entrepreneurship teacher if you think you lack
the skills in doing the task of monitoring and
evaluating the business you established.

Supervision is a very important technique you

How? need to use in assuring the proper
implementation of your business plan. Here are
some common techniques:

a. direct observation
b. dialogue with worker
c. dialogue with customers
d. reviewing the market plan
e. reviewing the production plan
f. controlling supply
and logistics hands-on

Supervision:
 Prepare a simple supervision plan and supervision guide. A simple yet adequate
supervisory plan will help in assessing the quality of activities performed by each
member of your enterprise.

Devise a Monitoring Curve and Control graph. This will ensure that you closely
monitor the different quality indicators set for your product or services offered.

Create a checklist of the different qualitative information you want to assess after a
quarter or a year of your business operation.

B. Some Common Tools for Monitoring and Supervising Business Operations

Used to:
Tools
Identify Describe Analyze

market share,
1. Bar Graph product performance, sales, buying
  comparing sales patterns

2. Benchmarking market position market share  

customer
3. Checklist
preferences    

Different
4. Program Matrix business Progress or Targets, goal
activities accomplishments attainment

quality of product/service
7. Indicator Matrix
product/service performance  

The table above presents some of the most common qualitative tools in business monitoring and
evaluation. These tools are used to identify, describe, or analyze business situations. Depending on the
needs of your business you can choose any one or combination of some of these tools in order for you to
evaluate your business. The main reason why you need to be familiarized with these tools is to avoid
problems, make your operate effectively, and efficiently.

1. Bar Graph

One way of presenting data you gathered in the business operation is through a bar
graph. It will help you to visualize the relationships among different categories of factors
affecting your business such as financial data, sales, projections and trends. It is used when
Making a Bar Graph

If you are not familiar with using Microsoft Excel, you can follow this simple steps to create a bar
graph.

1. Draw vertical and

horizontal axes.

2. Create a scale on the

vertical axis to measure the
frequencies of the variable.

3. Note the nominal scale

(different qualities variable).

4. Draw a rectangle for

each quality of the variable.

Expected Production Per Month

90
80
70
60
50
40 Students

30 Faculty
Community
20
10
0
N o ve m b er
O cto b er
S ep tem b er

D ecem b er
F eb ru ary
Jan u ary

A u g u st
A p ril

Ju n e

Ju ly
M arch

M ay

Example of a bar showing the expected production per month of a student-based enterprise.

2. Benchmarking
 Steps in Benchmarking
Select another organization to use as a “benchmark”.

You identify an enterprise that provides similar product or services but ideally not your competitor,
or the leader in the industry who is willing to share information with you.

Contact
Make a site visit to collect the
data:identified “benchmarked” organization.

 Determine in Explain
advancethe
thepurpose of your proposed
kind of information visit, gain their support and set a date.
you want.
 Send a list of questions to your benchmark contact for them to prepare for your visit.
 Agree on the agenda for the visit.
 Set appointment for the meeting and make an ocular inspection of the benchmarked
organization.
 Request for the future plans of the process or information you are investigating.
 Be ready to share the comparable information of your own organization.
Determine any important differences between the process used by your organization and
the process used by the benchmarked organization.

3. Checklist
Make a report of your findings, set a new goal and use the results to propose
improvements for your business.
Process indicator, or lists of closed-ended questions are prepared based on the standards set
for the purpose. It is used to ensure that different types of service or product providers in your
organization are coping or complying with the identified standard of treatment stated in the
checklist form.

When you are trying to analyze a problem, or when you are trying to find out if a
solution to a business operation problem was implemented successfully, it is used as
consistency check of a process based on flow chart, customer flow, production and workflow
in the business.

Steps in using Checklist

1. Review the steps of the process you want to observe.

2. Select the critical steps of the process.
3. Make a list of questions to check if the steps are performed. These questions should be “closed” or
answerable by “yes” or “no”.
4. Perform the observation and collect data.

Here is a sample of a checklist…

CHECKLIST: CHOOSING A GEOGRAPHICAL LOCATION

The following checklist includes several questions you should answer before making your
ultimate decision on where to open your business. Be careful to factor in your own special
circumstances, which do not necessarily appear on this list.

Yes No
Is the area zoned for this type of business? __ __

Are qualified employees available in the area? __ __

Is the site close to the markets served by the business? __ __

Are there any competitors in the area? __ __

Are the inventory and supplies the business needs available in the area? __ __

Can suppliers conveniently make deliveries to this area? __ __

 Yes No
Does the cost of this facility in this location compare favorably with other areas? __ __

Do the taxes on this facility compare favorably with other areas? __ __

Do the taxes on the business compare favorably to those in other areas? __ __

Is the area suitable for expansion in the future? __ __

Are the utilities needed to run the business available? __ __

Are there facilities nearby for transporting goods? __ __

Are the rates for transporting goods similar to or lower than in other areas? __ __

Are there adequate parking facilities for customers? __ __

Are there adequate parking facilities for employees? __ __

Is the traffic in the area compatible with this type of business? __ __

Are the wage scales in this area similar to or lower than other areas? __ __

Is this a safe area for employees, suppliers, and clients? __ __

Source: http://smallbusiness.findlaw.com/source/forms/be4_4_1.doc

Activity # 1

Instructions:

1. Prepare monitoring and evaluation checklist based on the identified business operation
variables. Give at least three (3) items for each of the following.
 Asset
 Liability
 Equity
 Cash flow
 Income
 Production Plan
 Marketing Plan
 Sustainability
 Linkages
2. After you prepared the checklist, have it edited by your classmate.
3. Trial-run your checklist.
4. Review the results of your trial run before finalizing the checklist.
5. Submit to your teacher the finalized checklist.

Write your questionnaire in the box below

 4. Program Matrix

Program Matrix presents the flow of specific business activity of the business at
a glance. It spells out the plan on how you will achieve established objectives as stated
in your business plan.

Step in Using Program Matrix

1.Establish your objective or target you want to accomplish.

2. List down the different activities need to take place to meet that objective.

3. Make a chart with the following headings:

4. Activities should specify the WHAT, HOW, and WHERE

Indicators should be the specific criteria for evaluation purposes.

Goal should be an expression of quantity “how much” will be and should be.

Resources spells out provisions needed to support the Activities.

Time frame should be realistic based on the activities and availability of resources

5. Fill out the chart, plan out the indicators, goals, resources,

personnel and the time frame that make up your overall

objective.

BREADWINNER Bake Shop

Program of Activities
First Quarter of 2020
Activities Indicators Goal Resources Time-frame

Purchasing 98% of raw Increase 7% of Purchasing  June 5 to

materials needed quarterly sales officer  June 15, 2020
for one production based on 2019
cycle are made
 available
Merchandiser
Reports
Increase cash  June 16 to
Selling  collections     August 15,
 Sales Personnel 2020
 
Sales reports are
Reporting
submitted and  August 16 to
Sales 
evaluated   Accounting Clerk 18, 2020

Activity 2
Instruction: Prepare a program matrix for your business for One-Quarter

MY Enterprises
Program Matrix
2nd Quarter of 2020
Activities Indicators Goal Resources Time-frame

         

   
 
   

   
 
   

   
 
   

   
 
   

5. Indicator Matrix

An enterprise owner can use an indicator to describe the business operations in Preparing
an terms of defined standards. It is developed by collecting data and then expressing it Indicator
through quantitative formulas or by means of graphs and tables.
1. Id
e
You can use an indicator to diagnose a current situation, to compare
nt
characteristics of target markets or a process with other factors or to evaluate the ify
variations of a business activity.

To construct an indicator you need a matrix as a guide.

the business variables you want to measure.

2. Describe the indicator in terms of proportions, time or frequency, percentage or rate.
3. Create a formula for the indicator. An indicator is composed of numerator (observable
characteristics) and a denominator (the reference point)
4. Find out the sources in obtaining data such as financial records, daily reports, surveys,
observations, interviews, etc.. depending on the information you want to translate into an indicator.
5. Identify the basis or standard of comparison.

Now, if the indicator has been prepared, you can now create an indicator matrix like the table below.
 What to Description of an Source of Source of Quality
Formula
measure? indicator Numerator Denominator Standard

           

           

ACTIVITY 3
Prepare your own Indicator using the table below. See instructions below.
What to Description of Source of Source of Quality
Formula
measure? an indicator Numerator Denominator Standard

           

           

           

           

           

           

On the table:

1. Write the questions on what you want to assess in your business operation.
2. Write the description of the indicator in the second column.
3. Write the formula on the third column.
4. Indicate on the fourth column the sources where the data can be obtained.
5. The standard of comparison should be written on the sixth column.

II. Evaluating Business Operations

 Assessment of business operations involves not only the qualitative description of how
it operates. Equally important is your mastery of the quantitative approaches in
monitoring and evaluating business operation for more objective treatment of some
variables so that you can easily grasp the viability of your business activities
 In module 7, you were given information about preparation and maintaining business
records. Your familiarity with that information is very important in quantitative
monitoring and evaluation of business operations.
 Successful entrepreneurs are noted for being keen with numbers or figures in
business. No business can grow over long term without an accurate financial recording
or accounting system. It is essential in forecasting and projecting results for
improvement.

 Financial statement analysis involves careful selection of data from financial

statements for the primary purpose of forecasting the financial health of your
enterprise. This is accomplished by examining trends in key financial data,
comparing financial data across companies, and analyzing key financial ratios.

 Conclusions based on this ratio analysis must be regarded as tentative. Ratios

should not be viewed as an end, but rather they should be viewed as a starting
point, as indicators of what to pursue deeper in your business operation. In
addition to ratios, other sources of data should be analyzed in order to make
judgments about the future of an organization. You should also look, for
example, at industry trends, technological changes, changes in consumer
tastes, changes in broad economic factors, and changes within the firm itself.
 Now you will be familiarized with the financial analysis of your business. Go over with
the information sheet provided in the succeeding pages. Perform all the computation
 required as diligently as you can. You will find it handy as you mastered the different
mathematical presentations for each method.

Useful Financial Ratios

Why?

Ratios are mathematical comparisons that can be used to provide a

very effective indicator of the financial progress of a company at any given
time.

These ratios do not have to be difficult though this may sound very
technical on your part as a student, you will only be needing a few of these
ratios in your business. You are primarily looking for trends.

To successfully manage your business, you need to be able to

understand and interpret these ratios.

Financial ratio is one of the most common methods in interpreting

analyzing financial statements.

Financial Ratio Analysis methods are:

a. Profitability Ratio
b. Liquidity Ratio
c. Efficiency Ratio
d. Financial Structure Ratio
In computing the financial ratio analysis, you need the following
accounting records:

1. Income Statement
2. Two-Column Balance Sheet
3. Projected Income Statement
4. Projected Balance Sheet

a. Analysis of Profitability

This type of ratio is composed of two types. One is the profitability compared with sales which help to
determine how well each peso of sales generates profit. The second is the profitability compared with assets
which help to determine how hard the assets are working to generate a profit.

Gross Profit Margin (GPM). This ratio represents the average ‘gross’ profit generated by
each peso of sales.
Gross profit Margin = (Gross profit / Net sales) × 100

The formula reflects the relationship between the firm’s pricing policies (gross sales) and its buying
policies (cost of goods sold). Applying this “The Gross Profit margin of Breadwinner Bakeshop in 2009
actual and 2010 projected financial statement,” the computation following the formula, you can see that the
firm is planning to increase gross profit margin from 37.5% in 2009 to 40.0% in 2010. This is due to Php2.00
increase in price at a time when the cost of goods sold is expected to increase by only Php1.00 per unit.
Computations:

Breadwinner 2009 = (Php225,000/Php600,000) x 100 = 37.5% (fig 2 & 3)

Breadwinner 2010 =(Php500,000/1,250,000) x 100 = 40.0% (fig 4 & 5)

Note: A decline in gross profit margin should be viewed with concern because it usually represents a
reduction in price or an increase in the cost of goods sold which is not being passed on to customers.

For purposes of computations of the financial ratio analysis, use the prepared Income Statement (2009 &
2010) and Two-column Balance Sheet of the Breadwinner Bakeshop on Figures 1 to 4

Figure 1

BREADWINNER BAKESHOP

Income Statement

For the Year Ending May 30, 2009

Sales 600,000

Cost of Goods Sold  

Beginning Inventory 45,000  

Purchases 392,500  

Less: Ending Inventory 62,500  

  375,000

Gross Profit Margin (___) 225,000

Operating Expenses  

Owner's Salary 18,000  

Wages 73,500  

Commissions on Sales 15,000  

Advertising & Promotions 60,000  

Telephone & Electricity 5,000  

Bank Service Charges & Interest 5,000  

Insurance 2,500  

Depreciation Expense 6,000  

Miscellaneous Expense 10,000 195,000

Net Profit Before Tax 30,000

Income Tax 12,000

Net Profit After Tax 18,000

Figure 2

BREADWINNER BAKESHOP
 Projected Income Statement

For the Year 2010

Sales 1,250,000

Cost of Goods Sold  

Beginning Inventory 62,500  

Purchases 812,500  

Less: Ending Inventory 125,000 750,000

Gross Profit Margin (___) 500,000

Operating Expenses  

Owner's Salary 20,000  

Wages 130,000  

Commissions on Sales 62,500  

Advertising & Promotions 187,500  

Telephone & Electricity 7,500  

Bank Service Charges & Interest 7,500  

Insurance 2,500  

Depreciation Expense 10,000  

Miscellaneous Expense 10,000 437,500

Net Profit Before Tax 62,500

Income Tax 25,000

Net Profit After Tax 37,500

Figure 3

BREADWINNER BAKESHOP
Balance Sheet

May 30, 2009

ASSET LIABILITIES  

Current Asset: Current Liabilities  

Accounts
Cash 6,500 Payable 59,500  

Accrued
Accounts Receivable 50,000 Expenses 500 60,000

Inventory 62,500  
 Prepaid Expenses 1,000 120,000 Long-term Liabilities  

Mortgage on Land &

Fixed Assets: Building 30,000  

Land 13,000 Bank Loan 10,000 40,000

Buildings 25,000 TOTAL LIABILITIES 100,000

Equipment 60,000  

(Less Accumulated Depreciation) (18,000) 80,000 OWNER'S EQUITY 100,000

Other Assets -  

TOTAL LIABILTIES & OWNER'S

TOTAL ASSETS 200,000 EQUITY 200,000

Figure 4

BREADWINNER BAKESHOP
Balance Sheet

May 30, 2010

ASSET LIABILITIES

Current
Asset: Current Liabilities

Cash - Accounts Payable 128,500

Accounts
Receivable 104,000 Accrued Expenses 500

Inventory 125,000 Bank Overdraft 21,000 150,000

Prepaid
Expenses 1,000 230,000 Long-term Liabilities

Fixed Assets: Mortgage on Land & Building 27,500

Land 13,000 Bank Loan 10,000 37,500

Buildings 25,000 TOTAL LIABILITIES 187,500

Equipment 44,500

(Less
Accumulated
Depreciation) (28,000) 82,500 OWNER'S EQUITY 125,000

Other Assets

TOTAL TOTAL LIABILITIES & OWNER'S

ASSETS 312,500 EQUITY 312,500
Net Profit Margin (NPM)

The ratio represents the average ‘net’ profit earned by each peso of sales. It reflects profitability after
the operating costs of doing business have been deducted from gross profit.

Net Profit Margin = (Net Profit before tax/Sales) x 100

Computations: Breadwinner 2009 and 2010

Net Profit Margin (2009) = (30,000/600,000) x 100 = 5%

Net Profit Margin (2010) = (62,500/1,250,000) x 100 = 5%

Think About…

“Why do you think, in-spite of the increase in Breadwinners projected Net Income, the net
profit margin has remained unchanged?”

Return on Assets (ROA)

This analysis focuses on the earning performance of your enterprise’s assets. You will need to look
into Income Statement in the Balance Sheet to compute the ROA.

Return On Assets = (Net Profit before tax/Total Assets) x 100

Computations:

Return On Assets (2009) = (30,000/200,000) x 100 = 15% of 200,000

Return On Assets (2010) = (62,500/312,500) x 100 = 20% of 312,500

Data from Income Statement and Balance Sheet 2009 & 2010

The computed ROA shows that there is an increase from 15% to 20%. It means that the
Breadwinner’s rate of profit is increasing faster than the asset base.

If there is a decrease in the ROA it means that the expenses rise faster than the sales revenue.
Thus, ROA should always be computed and analyzed based on the gross and net profit margins. A
decrease can also occur if the asset base increases at a faster rate than the profit.

Return on Owner’s Equity (ROE/ROI)

The earning power of the owner’s investment in the business is measured in terms of ratio between
the net profit before tax and the owners’ equity.

The Owner’s Equity is equal the Net Assets (total assets minus total liabilities). If there are no
liabilities, then it is equal to return on assets. This only happens if your business will not resort to borrowing
from loan companies. In most cases though, the owner’s equity is always less than 100% of the assets
employed and the return on owner’s equity may be different from the return on assets.

Return On Owners’s Equity = (Net Profit before tax/OE) x 100

Computations:

Return On Owner’s Equity (2009) = (30,000/100,000) x 100 = 30%

Return On Owner’s Equity (2010) = (62,500/125,000) x 100 = 50%

Data from Income Statement and Balance Sheet 2009 & 2010

b. Liquidity Ratio

The enterprise ability to meet its financial obligation and commitment is determined in a Liquidity
Ratio. If your enterprise cannot meet the obligations, then there is a need to take a closer look on how you
can shape-up your financial and cash flow budgeting. Liquidity Ratio is expressed in terms of Current Ratio
(CR) and Liquid Ratio (LR). To compute for CR and LR you need information from the end of the period and
projected Balance Sheets.

Current Ratio. This is the relationship between the current assets and he current liabilities.

Current Ratio = (Current Asset/Current Liabilities)

Computations:

Current Ratio (2009) = (120,000/60,000) x 100 = 2.0

Current Ratio (2010) = (230,000/150,000) x 100 = 1.5

Data from Income Statement and Balance Sheet 2009 & 2010

Breadwinner’s current ratio is projected to deteriorate in 2010 because the current liabilities are
rising at a faster rate than the current assets. It means that the bakeshop’s ability to meet its obligation in the
coming years will also decrease. Loan companies and banks consider this information seriously. If you are
the owner of Breadwinner Bakeshop, you need to consider this before applying for loan.

The rule of thumb here says that a business should attempt to maintain a current ratio of at
least 2:1. However, this needs to be interpreted according to individual circumstances of each business.

Liquid Ratio. One of the tools to assess the enterprise’s capacity to pay its obligations is liquidity. Many loan
providers prefer to evaluate the business ability to pay in terms of liquid ratio. This is the difference between
the current asset and the inventory divided by the current liabilities.

Liquid Ratio= Current Asset – Inventory/Total Assets

Computations:

Liquid Ratio (2009) = (120,000-62,500/60,000) x 100 = 0.96

Liquid Ratio (2010) = (230,000 – 125,000/150,000) x 100 = 0.70

Data from Income Statement and Balance Sheet 2009 & 2010

The rule - of - thumb in liquid ratio is 1:1. As you can see, Breadwinner’s liquid ratio is 0.96 : 0.70,
which means that their 2010 ratio is slightly unfavorable. However, using the 1:1 basis should also be
interpreted with utmost care.

c. Efficiency Ratio

The efficient use of assets is measured by the frequency of their turnover. When all the assets are efficiently
used, the return on assets is maximized.

Asset Turnover is the measure of how effectively the enterprise’s assets are working to generate sales..

Asset Turnover= Sales/Total Assets) x 100

Computations:

Asset Turnover (2009) = 600,000/200,000 = 3

Asset Turnover (2010) = 1,250,000 /312,500 = 4

Data from Income Statement and Balance Sheet 2009 & 2010

Breadwinner’s Asset Turnover forecast shows an improvement in 2010 asset turnover from 3 to 4
times. This means that the asset base will be working more efficiently to generate sales in 2010.

Many small enterprise owners adapt the use of accounts receivable and inventory turnover in greater
detail. These two current assets are primarily important for computing efficiency and liquidity ratios.
Accounts Receivable Turnover (ART) reflects promptness of the business in collecting accounts
receivables from customers. Ideally, the faster accounts receivables are collected, the better.

Accounts Receivable Turnover = Sales/ART) x 100

Computations:

Accounts Receivable Turnover (2009) = 600,000/50,000 = 12 times

Accounts Receivable Turnover (2010) = 1,250,000/104,000 = 12 times

Data from Income Statement and Balance Sheet 2009 & 2010

Based on the computations, the Breadwinner’s ART is 12 times both for 2009 and 2010. However,
converting this ART into Average Collection period gives clearer information on how fast the business
collects the Accounts Receivables from its debtors.

Average Collection Period = 360 days/ART)

Computations:

Average Collection Period (2009) = 360/12 times = 30 days

Average Collection Period (2010) = 360/12 times = 30 days

Data from Income Statement and Balance Sheet 2009 & 2010

The Average Collection Period of Accounts Receivable of Breadwinner is 30 days for both years.
The significance of computing the ACP is to compare the age of accounts receivables from one period to
another. If the average collection period is longer, it is often a danger signal that the enterprise is becoming
dependent on too many slow payers. It also means that the enterprise is carrying some bad debts that
should be written off. If the ACP is much shorter than the industry average, the firm might consider taking a
few more credit risk to expand or increase sales.

Inventory Turnover

This is the ratio which reflects how fast the inventory turns over or sells during the year. The ideal is
for you to aim at the highest rate of inventory turnover without too many stocks outs and lost sales.

Inventory Turnover = Cost of Goods Sold/Inventory Ending

Computations:

Inventory Turnover (2009) = 375,000/62,500 = 6 times

Inventory Turnover (2010) = 750,000/125,000 = 6 times

Data from Income Statement and Balance Sheet 2009 & 2010

Inventory Turnover of Breadwinner is 6 times from 2009 to 2010. It is just an average. This can be
increased to stimulate sales.

d. Financial Structure Ratio

Financial Structure Ratio refers to the relationship between the debt and equity of the business.
This relationship determines who really owns the business, the owner or the creditor.

Most of the successful entrepreneur started their business without adequate capital. With great
propensity in taking risk, they resort on capital borrowing from banks and lending institution. Engaging in
capital or investment borrowing is a healthy practice in business community. However, you have to take
precautionary measures before resorting to it. Familiarity with Financial Structure ratio will help you decide if
your enterprise can go on to borrowing money. One way of looking at financial structure is to focus on the
proportion of the business represented by the owner’s investment. This is the ownership ratio.

The ownership ratio reflects the proportion of the total assets, which are represented by the owner’s
funds. The difference represents the part of the firm’s assets funded by its creditors.

Ownership Ratio = (Owner’s Equity/Total Asset) x 100

Computations:

Ownership Ratio (2009) = 100,000/200,000 = 50%

Ownership Ratio (2010) = 125,000/312,000 = 40%

Data from Income Statement and Balance Sheet 2009 & 2010

Breadwinner Bakeshop’s balance sheet and income statement shows that the ownership ratio in
2009 is 50%. This means that half of the bakeshop’s investments come from its creditors. While in 2010, the
owner has only 40% funds in the business. So the greater portion of the investment is now with the creditors
which own 60% of the enterprise.

WORKSHEET 1

ArteCulante ENTERPRISES

Income Statement

For the Year Ending May 30, 2009

    

Sales 300,000

Cost of Goods Sold  

Beginning Inventory 22,500  

Purchases 196,250  

Less: Ending Inventory 31,250   ___________

Gross Profit Margin (___) 112,500

Operating Expenses  

Owner's Salary 9,000  

Wages 36,750  

Commissions on Sales 7,500  

Advertising & Promotions 30,000  

Telephone & Electricity 2,500  

Bank Service Charges & Interest 2,500  

Insurance 1,250  

Depreciation Expense 3,000  

Miscellaneous Expense 5,000 ________

Net Profit Before Tax 30,000

Income Tax 12,000

Net Profit After Tax _________

Your Task: Based on the above Income Statement of ArteCulante Enterprises for the Year Ending
December 30, 2008, compute for:

a. Cost of Goods Sold

b. Total Operating Expenses
c. Net Profit After Tax
d. Gross Profit Margin

WORKSHEET 2

ArteCulante ENTERPRISES

Projected Income Statement

For the Year 2010

Sales 625,000

Cost of Goods Sold  

Beginning Inventory 31,250  

Purchases 406,250  

Less: Ending Inventory 62,500 ________

Gross Profit Margin (___) ________

 Operating Expenses  

Owner's Salary 10,000  

Wages 65,000  

Commissions on Sales 31,250  

Advertising & Promotions 93,750  

Telephone & Electricity 3,750  

Bank Service Charges & Interest 3,750  

Insurance 1,250  

Depreciation Expense 5,000  

Miscellaneous Expense 5,000 ------------

Net Profit Before Tax ------------

Income Tax 25,000

Net Profit After Tax -------------

Your Tasks:

1. Based on the above Projected Income Statement of ArteCulante Enterprises for 2009, compute for:

a. Cost of Goods Sold

b. Gross Profit
c. Total Operating Expenses
d. Net Profit Before Tax
e. Net Profit After Tax
f. Gross Profit Margin
g. Return on Assets
h. Return On Owner’s Equity
2. Compare the Income Statement for 2008 and the Projected Income Statement and answer the following:

a. Was there a change in the Profit Margin?

b. Is the ArteCulante Enterprises generating profit?
3. Justify if the enterprise owner can borrow additional investment based on the result of your computations
in II. a & b.

WORKSHEET 3

ArteCulante ENTERPRISES

Balance Sheet

May 30, 2009

ASSET LIABILITIES  

Current Asset: Current Liabilities  

Cash 3,250 Accounts Payable 29,750  

Accounts Receivable 25,000 Accrued Expenses 500 60,000

Inventory 31,250  

Prepaid Expenses 500 ---------- Long-term Liabilities  

Mortgage on Land &

Fixed Assets: Building 15,000  

Land 6,500 Bank Loan 5,000 40,000

Buildings 12,500 TOTAL LIABILITIES ------------

Equipment 30,000  

(Less Accumulated Depreciation) (9,000) ----------- OWNER'S EQUITY 100,000

Other Assets -  

TOTAL ASSETS ----------- TOTAL LIABILITIES & OWNER'S EQUITY -------------

                   

A. Instruction: The table below summarizes the financial assessment tools you learned in Lesson 2.

 Using the Income Statement and Balance Sheet for 2008 and 2009(Projected) of ArteCulante
Enterprises, fill in the Numerical Value column what you have computed from Work Sheet 6.1 to 6.4.
 On the Analysis Column give your analysis of the business operation situation of ArteCulante
Enterprise.
 After you completed the SUMMARY OF FINANCIAL REPORT for ARTECULANTE
ENTERPRISES, make a status report enterprise owner. Use the format provided.

ARTECULANTE ENTERPRISES

SUMMARY OF FINANCIAL REPORT

Financial
Assessment Numerical
Ratio Analysis
Value
Tool
Gross Profit Margin

?
Profitability
Return On Assets

Liquidity Current Ratio

 ?

Accounts Receivable
Efficiency
Turnover

Financial Structure

B.

Status Report
ARTECULANTE ENTERPRISES
2ND Quarter of 2009

i. Introduction (Not more than 50 words.)

________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
__________________________.

ii. Financial Status:

(Provide Graphical presentations using 2005 as the Benchmark year for the following:

a.Profitability (Profit margin, return on assets and investments)

b.Liquidity
c.Efficiency
d.Financial Structure
iii. Summary of Monitoring and Evaluation Report conducted
a. Employee/Staff/Worker observed.
b. Results of the dialogue with personnel conducted
c. Results of the market and production plan reviews

iv. Future plans based on the financial status.

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
________________________________________________

v. Recommendations:
1. _________________________________________________________

2. _________________________________________________________

3. _________________________________________________________

Prepared by:
___________________________________

___________________________________

Activity 1

Create a bar graph using the data from a market survey on bread preferences of students. If you are familiar
with using Microsoft Excel you may do so. If not follow the instruction in making a bar graph from Information
Sheet 1.

Types of Bread Percentage

Pandesal 28%

Cheese Monay 24%

Empanada 15%

Hopia 26%

Tasty Bread 7%

Create your Bar Graph here.

 BENCHMARKING

Instruction: Benchmark on a fish processing plant (homemade sardines, patis, and other
products) in your community and prepare a report on packaging and production
techniques they used.

Benchmarked Processes in:

Enterprise
Production Packaging Labeling

Enterprise A

Enterprise B

Enterprise C

Analysis:

______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
_

Things to be improved in my business

________________________________________________________________________________________________
________________________________________________________________________________________________
________________________________________________________________________________________________
________________________________________________________________________________________________
________________________________________________________________________________________________
________________________________________________________________________
 A. MULTIPLE CHOICE:
Direction: Answer the questions honestly. Write the letter of your choice in your quiz notebook.

1. In any business, which of the following statements applies to purchase and sales receipts?
a. Purchase receipts show what you have ordered from others while sales receipts show the value of
goods received from others.
b. Purchase receipts show what you have purchased form others and sales receipts show what others
have purchased from you.
c. Purchase receipts show the items that others have purchased from you and sales receipts show
what you have purchased from others.
d. Purchase receipts show what others have ordered from you and sales receipts show the value of the
goods you purchased from others.

2. Which of the following statements best explains the most important reason why businesses use
checking accounts?
a. to gain tremendous prestige for entrepreneurs
b. to secure interest on the balance in the account
c. to provide a good record of payments
d. to enhance the quality of correspondence

3. Choose one of the following statements to indicate how the inventory card is related to the purchase
receipt and the sales receipt.
a. Many of the purchase receipts would involve adding inventory; sales receipts would be subtractions
from inventory.
b. Many of the purchase receipts would involve subtracting from inventory; sales receipts would be
additions to inventory.
c. Both the purchase and sales receipts would involve adding to inventory because they represent the
same transaction.
d. Both the purchase and sales receipts would involve subtracting from inventory because they
represent the same transaction.

4. The difference between the accounts receivable and accounts payable cards can best be explained
by which of the following statements?
a. Accounts receivable show your cash sales, while accounts payable show which customer owes
you money.
b. Accounts receivable show your credit sales, while accounts payable show which customer owes
you money.
c. Accounts receivable show the customers who owe you money, and the accounts payable show
the vendors to whom you owe money.
d. Accounts receivable show the vendors who owe you money, and the accounts payable show the
customers who owe you money.
5. According to the cash method, what do you need to determine the amount of profit for a particular
period?
a. accounts receivable card and the check book deposits and checks.
b. accounts payable card and inventory record.
c. deposits, revenue, checks written for expenses and service charges.
d. inventory record and checkbook deposits.

6. One of the best ways to determine whether you have made a good profit is to:
a. set a goal at the beginning of the year and compare your profit to that goal.
b. compare your rate of return on the business to the return which could be gained by using your
resources in alternative ways.
c. compare your profit to the 15% benchmark. If your return is over that amount, you are doing well.
d. compare your return from your business against your savings at a local bank.

7. Businesses that only sell services do not maintain inventory records because:
 a. tracking the movements of items would be necessary.
b. there is no goods to track
c. inventory records are time consuming for services.
d. only one inventory record is needed.
8. In a business, two items that you must withhold from their wages or salaries are: (Choose two letters.)
a. Income Tax b. SSS or GSIS c. hospitalization d. scholarship

9. Which of the following activities is the best example of a controlling function of management?
a. deciding the amount/type of supplies to be ordered
b. telling employees about their specific responsibilities
c. putting in a time-clock for employees.
d. writing checks to make payments.

10. Prices are determined by:

a. cost of production and market demand c. city regulations; laws and business
b. banks, as part of loan agreements d. the Central Bank of the Philippines

11. Indicate an example of a typical fixed cost.

a. cost of supplies to make an item c. profit
b. rent d. mailing cost of items sold.

12. There are a number of factors to consider when relating to your customers. Which of the following is
it.
a. informing your customer of returns of your merchandise.
b. knowing your product/service
c. telling customers whatever it takes to make them feel good.
d. trying to provide all products that your customer may want.

13. Which of the following types of financial information would a potential investor want to see in a
business plan?
a. start-up cost b. projected revenue c. break-even point d. all of the these

14. In SWOT analysis, there are forces such as inflation and unemployment rates, which are to be
considered as external environment where opportunities and threats abound. Which one is it?
a. economic forces c. political forces
b. societal forces d. technological forces

15. An essential analytical tool for business which compares the Total Revenue and the Total cost is…
a. Break – Even Graph c. Break – Even Analysis
b. Break –Even Point d. Break – Even Point Sales Volume

Your Tasks:

1. Based on the above Two-Column Balance Sheet of ArteCulante Enterprises for the December 30, 2008,
compute the following:

 Total Current Assets

 Total fixed Assets
 Total Assets
 Total Owner’s Equity
 Total Liabilities and Owner’s Equity

WORKSHEET 4
ArteCulante ENTERPRISES

Balance Sheet

May 30, 2010

ASSET LIABILITIES

Current Asset: Current Liabilities

Cash - Accounts Payable 128,500

Accounts Receivable 104,000 Accrued Expenses 500

Inventory 125,000 Bank Overdraft 21,000 ----------

Prepaid Expenses 1,000 230,000 Long-term Liabilities

Fixed Assets: Mortgage on Land & Building 27,500

Land 13,000 Bank Loan 10,000 ----------

Buildings 25,000 TOTAL LIABILITIES ----------

Equipment 44,500

(Less Accumulated Depreciation) (28,000) 82,500 OWNER'S EQUITY 125,000

Other Assets

----------
TOTAL ASSETS ----------- TOTAL LIABILITIES & OWNER'S EQUITY --

Based on the Status Report Recommendations, analyze the actual operation of your business as outlined in
your business plan by filling-up the table below.

Business Operation
Factors
Analysis Problems Met Actions

5 – attained successfully

3 – in-progress

1 – not attained

1. Financial Projection

2. Return on Asset

3. Return on Equity

4. Vision, Mission and

Values
 5. Social Responsibility

D. Answer the following:

1. How did your business performed for the year?

___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
__________________

2. Will you continue your business operation based on you answer in number 1? If not, why?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
_______________________________

Your Tasks:

1. Based on the above Two-Column Balance Sheet of ArteCulante Enterprises for the December 30, 2008,
compute the following:

b. Total Assets
c. Total Current Liabilities
d. Total Long-term Liabilities
e. Total Liabilities
f. Total Liabilities and Owner’s Equity
2. Compare the Balance Sheet in 2008 and the projected balance sheet for 2009 and compute for the
following ratio:

a. Current ratio
b. Liquid ratio
c. Asset Turnover
d. Accounts Receivable Turnover
e. Inventory Turnover
f. Ownership Ratio

2. Describe the efficiency and the financial structure of the enterprise

1. a. 6. a 11. a
2. d 7. c 12. c
3. b 8. d 13. b
4. d 9. d 14. d
5. b 10. a 15. a
 References
REFERENCES:

Pfeffer J., and R Sutton, The Knowing-Doing Gap: How Smart Companies
Turn Knowledge Into Action, Harvard Business School Press, 2000.

Davenport, Thomas (1993), Process Innovation. Harvard University

Press: Cambridge, MA.

Suchman, Lucy (1987), Plans and Situated Actions. Cambridge

University Press: Cambridge, England

Camposano, Jorge A. (2007), Entrepreneurship for Modern Business.

National Bookstore: Manila, Philippines
Cuyugan, Jorge H. (2005), A Business Planning Manual. Booklore
Publishing Corp.: Manila, Philippines
….Module on Problem Solving and Decision Making, (2007), Department of
Trade and Industry: Pasay City, Philippines.

….Business Plan, Breadwinner (2007), Muntinlupa Business High School,

Muntilupa City, Philippines.

http://smallbusiness.findlaw.com/source/forms/be4_4_1.doc
 For inquiries or feedback, please write or call:

Department of Education – Region III Learning

Resource Management Section (LRMS) Diosdado
Macapagal Government Center Maimpis, City of San
Fernando (P)

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