Impact of Financial Statements To The Decision-Making of Small and Medium Enterprises

CHAPTER 1
The Problem and its Background
Financial Statements is a reflection of the firm’s business activities (Pristine,
2015). According to Attah and Jindal (2017), financial statements are prepared
with the view that they will be a representation of transactions entered into by a
firm in a financial year, commonly called the accounting period. These financial
statements serve as the means of communication between business and all
interested parties. The types of financial statements include a statement of
financial position formerly known as balance sheet, statement of comprehensive
income, statement of cash flow and statement of retained earnings that serves
different purposes in attaining a firm’s business interests such as decision-making,
profits, and providing high quality goods and services. Moreover, most companies
view the role of financial statements is significant in the continuity and survival of
any company (Dantas, 2013).
According to Zager (2006), one of the key components in the process of
decision making is to have quality information, especially when it comes to
accounting information systems and financial statements. One major aspect of
decision-making is taking the right investment decision (Pristine, 2015). As
financial statements are one of the most important information that is within your
reach when it comes to decision making, it then goes under a process of financial
statement analysis to properly select, evaluate and interpret financial data in order
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to assess the company’s state whether in the past, present or future financial
performance (Gavin, 2020). Hence, investors and creditors use the information
from financial statements to make decisions about the valuation and credibility of
a firm. In addition, financial statements are viewed as a decision-making tool for
operational decisions in which it shows business trends, rates at which it collects
receivables, rates in paying creditors and any types of cash flow problems (Bluest,
2021).
The major objective of this study intends to look into the impact of financial
statements on the decision making of small and medium enterprise owners in
Pasig City specifically in Barangay Bagong Ilog and Kapasigan.
The possible contribution of this study is to identify the impact of financial
statements and how decision making of small and medium enterprise owners will
affect their overall business operations specifically in investments, financing, and
operational decisions. Other possible contributions include giving rise to insight of
financial information to existing and potential investors, creditors, customers,
employees, and management regarding overall forecasting business decisions.
Moreover, this study will help to know if financial statements are a reliable tool for
decision-making for small and medium enterprises.
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Significance of the Study
The vital results of this study could be favorably informative and beneficial
to the following:
Small and medium enterprises. This study will enable them into making
proper decisions towards financial security, investment decision making and
developing business operations.
Investors. This study will enable them to make proper investment decisions
on a firm regarding its financial solvency and possible risks.
Creditors. This study will enable them to make proper lending decision
making through the knowledge of a firm’s financial solvency and possible risks.
Employees. This study can benefit them to identify potential errors and
benefits in the financial statements that can affect overall financial security of the
company and raise awareness.
Future researchers. This study can provide baseline information for other
researchers as a reference who are conducting a similar study.
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Theoretical Framework
Figure 1. Theoretical Framework

Decision theory states that optimal decision making with different alternatives
requires mathematical strategies to come up with a suitable result alongside risks
involved (Yadav, 2018). Decision analysis requires a decision maker’s utility
function present to choose from a variety of possible decisions while uncertainties
in the future exists. It is a common goal to ensure maximizing expected profit when
probabilities are assessed and analyzed. There are three decision making criteria:
(1) decision making under certainty is when the decision maker knows, with
reasonable certainty, the consequences of each alternative and that the alternative
chosen will base under conditions of certainty, accurate and reliable information
for a sound decision making process. (2) Decision making under risk is when the
decision maker considers the occurrence of nature (if present) that can be aligned
with making an optimal decision. (3) Decision making under uncertainty is when
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various states of nature are presented to the decision maker but lack sufficient
information to make certain optimal decisions.
In understanding and correctly analyzing the information from the financial
statements, interested parties and users (major stakeholders) can use these
statements as a guide to decide certain business decision making and ultimately
fulfill their intended mission. The data presented in the financial statements can
assist the management in making necessary business decisions in connection with
the continuity of their business. Moreover, the information given by these
statements includes the performance and changes in their business operations
which are relevant when making overall organizational decision making.
Conceptual Framework
Figure 2 presents the conceptual framework of the study that will be used
in determining the financial statements in small and medium enterprises in Pasig
City and their impact on decision making of the owners.
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Figure 2. Conceptual Framework of the Study
The financial statements and decision-making illustrate the independent
and dependent variables of the study. The independent variable financial
statements which includes statement of financial position, statement of
comprehensive income, statements of cash flow, statement of retained earnings
and dependent variable decision making which includes investment, financing, and
operational.
The variables connecting the financial statements and decision-making
indicate the hypothesized relationships between the financial statements and
decision making of the small and medium enterprise owners in Pasig City. Based
on the framework, the study hypothesized that the financial statement does not
significantly impact the decision making of small and medium enterprise owners in
Pasig City.
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Statement of the Problem
This study intended to look into the impact of financial statements on the
decision making of small and medium enterprise owners in Pasig City.
1. How may the financial statements of small and medium enterprise owners in
Pasig City be described in terms of:
1.1 Statement of Financial Position;
1.2 Statement of Comprehensive Income;
1.3 Statement of Cash Flow; and
1.4 Statement of Retained Earnings?
2. What is the extent of impact in the decision-making of small and medium
enterprise owners in Pasig City in terms of:
2.1 Investing;
2.2 Financing; and
2.3 Operations?
3. Do financial statements significantly impact the decision making of small and
medium enterprise owners in Pasig City?
4. What implications may be derived from the results of the study?
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Statement of Hypothesis
Financial statement does not significantly impact the decision making of
small and medium enterprise owners in Pasig City.
Scope, Delimitations, and Limitations of the Study
The study intended to determine the impact of financial statements on the
decision making of small and medium enterprise owners in Pasig City, specifically
in barangay Bagong Ilog and Kapasigan engaged in merchandising and service
businesses during the fiscal year of 2021-2022.
The financial statement had been further delimited to the statement of
financial position, statement of comprehensive income, statement of cash flow and
statement of retained earnings while decision making is further delimited to
investment decisions, financing decisions and operational decisions. This study
limited the respondents to those who were operating businesses during the entire
fiscal year of 2021-2022. To have an accurate information regarding the study, the
researchers also focused on the active sellers only. This also limited other
information not related to the topic to assure respondents that information was
mainly for academic purposes and their identities would not be disclosed
anywhere. In connection with this, personal information was limited only to their
age, gender, and line of business.
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Definition of Terms
The following terms are defined either conceptually or operationally for better
understanding of the research work.
Creditors. An entity that extends credit, giving another entity permission to borrow
money to be repaid in the future.
Decision Making. A business decision with the use of financial statements.
Financing Decisions. The decision concerned with borrowing and allocation of
funds required for the investment decisions.
Financial Statements. Written reports created by a company’s management to
summarize the financial condition of the business over a certain time period
Financial Statement Analysis. The process of analyzing a company's financial
statements for decision-making purposes used by internal and external
stakeholders to evaluate business performance and value.
Investment Decisions. The decision made by the investors or the top-level
management with respect to the amount of funds to be deployed in the investment
opportunities.
Investors. Any person or other entity (such as a firm or mutual fund) who commits
capital with the expectation of receiving financial returns.
Operational Decisions. The specific business decisions made every day within
every business.
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Statement of Cash Flow. A financial statement issued by a business, and
describes the cash flows into and out of the organization.
Statement of Comprehensive Income. A financial statement that reports a
company’s revenues and expenses for a given period of time.
Statement of Financial Position. A financial statement that lists the assets,
liabilities, and equity of an organization as of the report date.
Statement of Retained Earnings. A financial statement that shows the
relationship between a company’s income statement and balance sheet from one
reporting period to the next.
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CHAPTER 2
Review of Related Literature
This chapter shows a retrospective presentation of previously written
material; research literature and conceptual that has relevance and significance to
the research under consideration.
Financial Statements
The Functions of Published Financial Statements
According to Chambers (2012), many issuers of financial statements have
had the concealment of information, the misrepresentation of results and the
misdirection of users of the statements. It is unlikely to detect financial
manipulation by investors due to the relationship between the management and
the independent auditor.
The cause of misinterpreting the contents of the financial statements by the
management is to bolster financial performance in the point of view of external
stakeholders and meet the established performance expectations to boost their
personal compensation for personal gain which leads to incorrect financial
statements. Some managers have insufficient knowledge about the contents of the
financial statements that may consist of errors or fraud, subsequently executing
inaccurate financial reports for the users of the said statements.

The Deteriorating Usefulness of Financial Report information and How to
Reverse It
According to Lev (2018), There is a widespread dissatisfaction with the
relevance and usefulness of corporate financial report information to investors. The
dissatisfaction is corroborated by empirical evidence which consistently
documents a decreasing ability of financial information, and earnings in particular,
to reflect enterprise performance, predict future performance, and explain share
prices and returns.
The small and medium enterprise owners produce management assertions
which are also called the financial statements, and these said statements are
reported inaccurately which causes the investors of the company to lose interest
in investing further because of low enterprise performance which affects
profitability. The financial statements affect the decision making of the investors,
wherein incorrectness of the said statements may affect their decision pattern and
decrease return on investments.
Interpretation on Financial Statements
According to Anojan (2020), the analysis of financial statements is a study of
relationship among various financial facts and figures as given in a set of financial
statements, and the interpretation thereof to gain an insight into the profitability,
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financial position, liquidity and operational efficiency of the firm to assess its
financial health and future prospects.
The small and medium enterprise owners may base future insights in
profitability, operational efficiency, financial position and liquidity from the
examination of the financial statements, given that it is reliable, accurate and
conformity with the accounting standards. In other words, the financial statement
analysis provided by the SMEs owners may be used as a basis that will affect the
decision making of the users of financial statements.
Analysis of Financial Statements
According to Hasanaj and Kuqi (2019), financial statements give
information regarding assets, liabilities, shareholder equity, income, and
expenditure, and cashflow. It gives information to shareholders on how reasonable
investments are made in the company because they are interested in making profit
from investments made. Financial Statement Analysis can assure the company’s
financial condition and how it has operated during the periods in which the analysis
is conducted and what will be the future trends in the enterprise. Financial
Statements are very important along with its analysis, as it is necessary for making
the right decisions. As the information from the financial statements are used for
basis in making decisions either internally or externally.
In relation to the small and medium enterprises, they can use their financial
statements as a basis of information for their decisions. They can use the financial
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statements alongside accounting to better understand their company and to further
their goal in their journey in making a profit. As financial statements are informative
in all the aspects of their business, not only in their assets and income, but also
help them track their liabilities and expenses.
Users of Financial Statements
According to Davidson (2020), creditors and owners of a business are users
in a given set of financial statements. Creditors are statement of financial position
oriented, whereas owners are statements of comprehensive income oriented.
When the financial statements are inaccurately made, it will represent a biased
and misleading source of information on the company’s statements of financial
position and statement of comprehensive income.
In the case of misleading information in the financial statements, these ratios
might include inaccurate representation of a small and medium enterprise’s
statement of financial position, statement of cash flows and statement of
comprehensive income. The financial manipulation resulting from incorrect
financial statements may cause users to wrongly anticipate the estimated amount
owed to investment returns to investors, may result in bad debts with regards to
creditors and decision-making of the owners of the business.
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Financial Security of the Enterprise: An Alternative Approach to Evaluation
and Management
According to Dokiienko (2021), the main components to measure financial
security are: financial stability, solvency, and risk. By modifying and adjusting the
financial statements of the Ukrainian sunflower oil production enterprises, it was
used as the basis for structuring the assets and capital of the said enterprise by
determining the overall level of financial stability and security. The modern tool
indicated in the study to diagnose financial security of Ukrainian sunflower oil
production enterprises is shown in Figure 1 of the study. It grouped economic
assets as current and non-current, level of liquidity as liquid and non-illiquid assets
in the form of financial and non-financial assets, capital structure of the enterprise
by evaluating the liabilities from the statement of financial position, and grouped
the capital not only on the basis of equity and liabilities, but external and internal
liabilities included.
By using the data given by the financial statements, it can state an
enterprise’s financial condition, position in the economy and its remaining
shareholders equity. In determining these, the management can forecast the next
step or action to make according to their financial condition of a business, to further
achieve financial security and stability. High-level of financial security with
apparent sufficient stability, can guarantee solvency and optimal reliability of the
overall performance of an enterprise. With that said, it is almost guaranteed to have
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effective financing of current operational activities and the continuity of the
enterprise.
Statement of Financial Position
Importance of Financial Statements – The Balance Sheet
According to Thakur (2022), the financial position, and detailed investments
of the company’s asset investments is provided and shown on the balance sheet
in which it also contains the debt and equity levels of a company. With the balance
sheet, the capital mix will be provided which helps the investors and creditors to
understand the company’s health and current performance.
By using the data given by the statement of financial position, which is the
newly provided term for the old report title balance sheet, the small and medium
enterprise owners would also benefit from said report as it provides the snapshot
of the company and its health. In which case would help the owners’, not just
investors and creditors, to have information within their reach that would help them
carry out decisions that relate to the business.
Components of the Financial Statements – Balance Sheet
According to Vaidya (2022), the balance sheet details the company’s
financial situation at a specific period. In addition, it goes by the names Statement
of Financial Position, Statement of Financial Condition, and Position Statement. It
displays the assets that the company has on hand, and the funding sources that it
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utilized to acquire those assets in the form of capital contributions, and the liabilities
that the company incurred on the other. In a nutshell, the balance sheet
demonstrates how funds have been allocated to the company’s operations and
how the funds are used.
With the use of the statement of financial position, in relation to the small
and medium enterprises, the report summarizes everything that the enterprises
own, to funds on hand, funding sources, and how they acquired such funds in the
form of capital contributions, and comes in the liabilities in which what the
enterprise owes to their creditors, or certain debts that were subsided for future
use. Lastly, the equity section, which shows the equity of each owner or
shareholder of the company.
Statement of Comprehensive Income
A Summary of a Company’s Net Assets Over a given Period of Time –
According to Corporate Finance Institute (2022), it is a summary of all the
sources of revenue and expenses, which also includes taxes and interest charges.
The primary objective of the income statement is to inform the reader of how a firm
generates money and the associated expenditures. These specifics are
highlighted in the revenue statement in great detail. It comprises other, unrelated
charges like taxes in addition to the cost of products sold, which is tied to
operational operations. Similar to this, the income statement records other revenue
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sources that are unrelated to a company’s core business. This includes things kike
the interest that has accumulated on company investments.
In relation to the small and medium enterprises, the use of the statement of
comprehensive income, formerly known as income statement, details the interest
of the company in many aspects of the business, mostly its operations, in which it
involves what the SMEs primary source of income and other income. It also
includes the expenses, not only limited to its selling and administrative, but along
with its taxes. The statement of comprehensive income fully shows the company’s
overall operational efficiency, in which it shows the net profit that helps not only the
SME Owners but also its potential and current investors.
How to Read and Understand an Income Statement
According to Stobierski (2020), one of the most often and important financial
statements you’re likely to see are income statements. Income statements,
sometimes referred to as profit and loss (P&L) statements, include the cumulative
effect of revenue, gain, expense, and loss transactions and provide a summary of
all income and costs for a specific period. Income statements, which display
financial patterns and comparisons over time, are frequently given as quarterly and
yearly reports.
In relation to the small and medium enterprises, the income statement now
known as the statement of comprehensive income, it is one of the major or most
important financial statement reports their company has. With the use of the
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statement of comprehensive income the SMEs can provide a summary of all
income and costs for a specific period.
Statement of Cash Flow
Optimization of Cash Flows at the Enterprise
According to Zaichenko and Probnyak (2021), optimizing cash flow is
essential to maximize financial stability and increase solvency. A balance between
positive and negative cash flow should be determined since both excess cash
flows and deficit cash flows have negative consequences on the economic
activities of an enterprise. To balance out the statement of cash flows, it is
recommended to choose the most rational management volume in time and space,
considering an enterprise’s industry specifics and features of business processes.
Optimizing cash flows includes maximizing spending of money funds as efficiently
as possible, considering the involvement of the money supply usage in the
conditions of scarcity of productive resources. A positive cash flow may reflect that
an enterprise is not investing in operating activities, which can lead to depreciation
of free funds, decrease in capital turnover or deprivation of future income. Whereas
a negative cash flow may indicate that an enterprise is becoming insolvent and
inefficient in handling business operation management and cost management.
By maximizing net cash flow income, it can ensure financial stability of an
enterprise to continue the going concern concept wherein it will continue to operate
indefinitely. In contrast to this, the effects of having a negative net cash flow profit
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may force an enterprise to discontinue its operations on account of this reason
whether by being insolvent and such. Ensuring effective management regarding
the operations, financing and investing of a business as well as optimizing cash
flows can guarantee the success of any enterprise.
How to Read and Understand a Cash Flow Statement
According to Stobierski (2020), a cash flow statement’s goal is to give a
thorough account of what occurred to a company’s cash over a given time period,
sometimes referred to as the accounting period. Based on how much money is
coming into and going out of the company, it shows how well a company can run
both short and long term. One may determine how much cash different sorts of
operations create based on the cash flow statement, and one can then base the
company decisions on the study of the financial statements. As such a company’s
capacity to maintain its financial stability and expand its operations is directly
related to its operational cash flow, it is ideal for it to frequently surpass its net
income. Hence, cash flow and profit are not the same thing, a cash flow statement
is frequently analyzed alongside other financial records like a balance sheet and
income statement.
In relation to the small and medium enterprises, the use of statement of
cash flow is one way to determine the company’s operating, investing, and
financing activities in terms of inflows and outflows of the company. The cash flow
statement will help the small and medium enterprise owners whether they are
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capable of investing into new product opportunities, and inflows & outflows that
should be observed.
Statement of Retained Earnings
Study on Relationship between Retained earnings and Firm Performance:
Evidence from Vietnam
According to Le et. Alia (2020) retained earnings play a vital role in
supporting the growth of a company. It is determined as retention of profits after
dividends are paid out. They have gathered data from the Hochiminh Stock
Exchange in which 37 construction-listed companies were selected. The results of
the study states that retained earnings do give out positive effects on the
performance of the firm.
In relation to small and medium enterprise owners they may rely on their
retained earnings to create a more positive effect on their business performance.
In turn, to better make business decisions with the use of financial statements apart
from the statement of financial position, as the statement of retained earnings show
the retention of profits after dividends are paid, as the data is collected annually.
Impact of Retained Earnings on Stock Returns of Food and Personal Care
Good Industry listed in Karachi Stock Exchange
According to Javed and Shah (2015), retained earnings are left after
deducting the expenses and paid dividends, as it also retains the company’s future
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growth. They have gathered data from Karachi Stock Exchange, particularly the
stock returns of the food and personal care industries. The results of the study
states that the continuity of possession of earnings only has a weak and
insignificant relationship with stock returns.
In relation to small and medium enterprise owners, retained earnings will
only have a weak and yet insignificant effect on their stocks. Therefore, retained
earnings will not hold a significant effect on their stocks but to other significant
aspects of the business as like in this study which is decision making.
Financial statements are informative tools that can reflect a company’s
financial condition, position at a given date assuming that the information given in
the said statements are correct, accurate, and reliable. It can be used as a basis
to forecast investing, financing, and operation decisions within the organization.
By using financial statement analysis to evaluate past and current performance of
a business, the management can forecast and predict future performance and
overall growth of a company.
Financial statements list a company’s assets, liabilities and equity at a
specific date. The information given can help the management assess the financial
health of a business. It also shows the financial performance of a business over a
certain accounting period. This reflects a company’s profitability over the course of
the accounting period, and therefore essential to the management to make correct
economic decisions. Moreover, it reflects the company’s cash inflows and cash
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outflows over the course of a specific period. It can help the management make
the necessary cash planning decisions whether operating, financing, or investing
activities. Lastly, it reflects a company’s net worth over a certain period of time. It
can help the management determine necessary decisions to improve market and
investor confidence in an organization.
Decision Making
The Use of Financial Accounting Information and Firm Performance: An
Empirical Quantification for Farms
According to Slof and Argilés (2003), accounting information is generally
believed to be useful in decision making. They gathered data from Catalan farmers
who were given financial reports by the European Farm Accountancy Data
Network. The results thereof showed that the Catalan farmers who used the
provided financial reports during their decision-making purposes were significantly
better than those who did not rely on the reports.
In relation to small and medium enterprise owners’ decision-making
process, accurate financial information affects profitability forecasting and financial
performance development therefore finding reliability in the financial statements
on their decision-making process.
The Effects of Information and Cognitive Processes on Decision Making
According to Rodgers and Housel (2012), there are two stages of cognitive
model of decision making within the context of loan decisions; conceptually-driven
and data-driven. The results explained that in the first stage of cognitive
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processing, biases caused different evaluation and judgment of loan information
based on the available information. The results also explained that decisions made
in the second phase of processing, crucially affected decision choice by biased
conservatism.
External stakeholders, specifically creditors, may judge loan decisions
depending on the available financial information given. One of the traits used and
stated when considering lending a loan is conservatism, wherein potential creditors
of a company are skeptical to avoid misinterpretation of financial information and
potential loss when lending loans to small and medium enterprises.
Depreciation and Business Decision-making
According to Bennett (2012), depreciation is a measure of asset value
consumed over a period. Depreciation decreases the amount of an asset used
over a period of time, hence, decreasing the original cost of an asset in the
statement of financial position. Accounting institutions in the United Kingdom and
Australia have shown interest in reducing the multiplicity of accepted accounting
principles and presumably unaccepted practices.
Subsequently, external, and internal stakeholders like creditors, guarantors,
insurers, and potential investors examine the statement of financial position before
making a decision to set forth investments within a business. It has been
established that users of accounting reports must be identified for the purpose of
prerequisite decision-making process to sensitive reporting.
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Embracing Ambiguity in Management Control and Decision-Making
Processes
According to Quattrone (2017), embracing ambiguity and how to harness
this trait to provoke thoughtful debate and balanced judgments. He elaborated his
experience using his company’s case, that a business must identify first whether it
can pay its staff on salary day, number of people they can employ and such based
on the financial information given.
This correlates with small and medium enterprise owners on their decision-
making process that may affect future business performance, efficiency of
management decisions regarding financial growth, profitability and maintaining
their internal and external stakeholders.
What Investors Want to See in Financial Statements
According to Najjar (2021), before making an investment or extending a
loan to a firm, investors and lenders will look for certain important performance
indicators in its financial statements. Often, owners work with their controller
services to measure and enhance these important indicators since investors will
be examining them. Financial reports cards for business serves as indicators of
how well your company is performing.
This correlates with the small and medium enterprise owners on their
decision-making process that often affects their potential loan opportunities, not
only extension, but also in terms of generating another loan from a financing
company.
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Investing Decisions
Quality Investing in CEE Emerging Markets
According to Zaremba (2014), quality investment is no longer a new idea
for the investment community. The primary goal of investors is to have liquid
companies that are decent in financial status and have long-term growth. The
study had 1,300 stocks from 11 central and eastern European countries for periods
2002-2014 documents that generated a strong gross-profitability premium and
inverted liquidity premium. The result of the study states that some investors, asset
managers and fund pickers find it sensible for portfolio managers to implement
some quality strategies in the CEE markets. In addition, Evaluation of performance
portfolios of CEE Stocks, for either investment decisions or academic research,
should consider the influence of quality effects.
The study states that data from performance portfolios are significantly
affected by some quality effects for either investment decisions and academic
researchers. In relation to SMEs, it is important for investment decisions to always
have liquidity or can be liquidated.
Financing – the Basis of Organization and Realization of the Investment
Policy of Russian Enterprises
According to Charaeva, et al. (2016), the investment policy of Russian
enterprises not only focused on investment needs of the enterprise, but also give
emphasis to the investment management system which correlates with the

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reinvestment rate structure or scale of investments in order to enhance
development and expansion of the enterprises. The study represented an
illustration of investment relations in connection with identifying the number of
strategic “points of growth” which is optimal for forecasting quick returns and
overall development of the enterprises.
Investment decisions lead to financial aid and growth of enterprise entities
in the market economy. Extending investments is part of financing decisions and
subsequently attracts innovations that result in efficient productions, emergence of
new investments and expanding enterprises for long-term continuity. Financial
resources can serve as the basis for financing decisions and realization of
investment projects to assess solvency, and financial position of the enterprise.
Financing Decisions
The Impact of Financing Decisions on Firm Performance
According to Sule (2021), financing decisions are decisions based on the
information on the statement of financial position specifically in the liability and
equity sections concerning decisions to issue bonds, raising funds by investments
and acquisitions, strategic decisions, and shareholder returns. In terms of
profitability, the trade-off theory theorizes a connection between leverage and
profitability, wherein a positive relationship between the two factors will
consequently employ more debt financing based on their capital structure and be
more profitable than a negative relationship between leverage and profitability.

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In connection with financing business activities and decisions, profitability
can be measured by the return on assets, return on investments, and return on
equity. These determinants will help make appropriate capital structure decisions
regarding a firm’s debt ratio (assets financed through debts). Moreover, the factors
provided can be relevant to attain the target leverage to maximize a firm’s
profitability and value.
An Empirical Evaluation of Tech Interventions to Improve Financial Decision-
Making
According to Ceschi, et al. (2021), poor decision-making can create
negative repercussions in both the individual and social levels. Their study states
knowledge on debiasing interventions by providing findings on technological-
based interventions for financial decision-making. They empirically compared two
technological interventions that are based on computer-supported collaborative
learning (CSCL), and the technology acceptance model (TAM) in which were
associated with a different incidence of financial biases. The findings of their study
states that TAM-based groups reported lower financial biases than those in the
CSL-based training group and the control group.
In correlation to the financial decision-making for SMEs, technological or
computer-supported models/interventions only affect a lower percentage for
financing decisions or financial biases as the term in their study. Technological
aspects will only have a low effect or percentage on financing decisions.
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The Impact of Financial Decisions and Strategy on Small Business
Competitiveness
According to Mosqueda, Salazar, and Soto (2012), Financial decisions is a
determinant of business competitiveness. Basic features that support
organizational strategies such as financial analysis, and planning are not existent
in micro and small enterprises in turn creating a significant strain on their financial
decisions. The study had 202 businesspeople that encoded information from
Mexican Companies in the region of Celaya as respondents. The result of their
study states that the business owner must know and analyze the financial
decisions that affect the firm in all levels to be able to attain organizational goals,
financial decisions, and to enhance the company’s growth.
In relation to small and medium enterprise owners on their financial
decisions, they should know and analyze their own financial decisions to be able
to attain organizational goals, future financial decisions and to enhance their
company’s growth. As financial information is quite limited in their level which
causes strain in their business decisions.
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The Impact of Corporate Characteristics on the Financial Decisions of
Companies: Evidence on Funding Decisions by Italian SMEs
According to Lombardi, Rossi, Siggia et al. (2015), Financial decisions is
management of the capital factor from acquisition until the time of its use. In turn
is focused on quantitatively and qualitatively observing both its capital resources
in origins and in their destination uses. The study had 80 respondents from Italian
SMEs. The results of their study proved that financial decisions are complex and
are underestimated by SMEs, in which many of the companies in the sample had
decision makers that took choices without appropriate information and training.
In relation to financial decisions to SMEs, it is underestimated and not
viewed highly according to Lombardi, Rossi, Siggia et al. It is further defined that
financial decisions are complex, that greatly affects businesses in their capitals,
and operating revenues. Thus, marking Financing Decisions is a significant aspect
in business decision-making.
Operation Decisions
Operational Decisions and Sustainability: A Brazilian Case of a Drugs
Distribution Center
According to Thiago, et al. (2020), sustainability of operational decisions in
the supply chain of pharmaceutical sectors has an important role in global
sustainability in relation to decisions concluded from the results of performance
30
analysis of economic indicators such as the trade-off analysis that demonstrates
social and economic areas of operating business decisions. Other key indicators
include costs, key performance and the author associates this with strategic
management and operations management. Moreover, the basis of a sustainable
organization is measured by operating decisions, which, if effective and applied
correctly, will result in high performance and better results, such as profitability,
social care, and environment preservation.
In relation to the contents of the financial statements, the management can
determine appropriate operational decisions such as whether the enterprise is
capable of freeing existing cash for operating expenses or to decide whether to
tackle additional credit. A good strategic and operation management can also
affect decisions under capital budgeting, cost budgeting and increasing overall
profits or revenues. Additionally, it can also forecast business operations regarding
possible future revenues and expenses that will be incurred by a firm which can
be a determinant for short-term sustainability and increasing business value.
Strategic, Tactical and Operational Decisions in Family Businesses: a
Qualitative Case Study
According to Kuruppuge and Gregar (2020), decisions made in the business
must always be connected or aligned to its objectives. As all firms in either sector
are using all their resources and trying to increase their profits. In regards to
operational decisions, it was determined through the involved cost of the action.
31
For example, a business is said to be highly competitive in nature, the managers
of the family businesses would then look or focus themselves on finding outside
managers to be able to cope with competitions. The results of the study show that
Owner-managers’ are the ones whose decision is most important as they are
based on rational, risk averse and deliberate business decisions that would assist
the growth of their business.
In relation to small and medium enterprise owners’ their operational
decisions will be the most highlighted or chosen as they tend to know more about
the business’ interests along with their rationale, and risk averse to assist their
businesses.
Implications between Financial Statements and Decision-Making
Financial Statements and Personal Characteristics in Investment Decision
Making
According to Falk (2012), it is generally accepted that the purpose of financial
statements is to furnish investment-decision makers with information about the
company issuing the statements. Correspondingly, financial statements are aimed
to guide the investors within a company to make sound decisions and aimed at
investment advisers to further develop business operations.
Furthermore, he described the relationships between the use of financial
statements in investment decision making according to some characteristics of the
users of the said statements; the user’s age, experience in investment-decision

32
making, degree of concern, financial education and frequency of reading financial
journals. The said characteristics will assist investors of small and medium
enterprises in identifying potential investment risks together with investment
returns, and the owners of small and medium enterprises to strategize positive
change within the organization.
Chinese SMEs’ Uses of Financial Statements to in Decision Making
According to Auken and Yang (2015), the study gathered 46 Chinese small
to medium enterprises (SMEs) factors regarding the impact of financial statements
usage to make decisions. The study stated that financial statements contain
insightful information about potential risk and return implications of abundant
decisions. Based on the use of financial statements, it is essential to support
decision making that is correlated with the company’s operational and strategic
goals.
The important factors considered in decision making of small and medium
enterprise owners based on the evaluation of financial statements are: liquidity,
financial needs and risk attributes. Regardless of the reliability of the financial
statements, if the owners of small and medium enterprises do not know how to
evaluate the information then the financial statements are worthless in making
business decisions.
33
Impact of Misstatement in Financial Statements on Investment Decision
Making
According to Attah and Jindal (2017), financial statements are prepared
with the view that they will be a representation of transactions entered into by a
firm in a financial year. The study found out that there are several areas of a firm’s
financial statements that are misstated, such as impairment of assets, inventories,
receivables, accrued expenses, etc. He describes that misstatements occur when
an auditor expresses his own judgment or opinion, whether intentionally or by
error.
When an incorrect financial statement is present, it can affect the solvency
of a small and medium business as well as its profitability. Auditors are unlikely to
uncover all incorrect financial statements, hence, interested parties or users
(internal and external) may resort to other sources of information about a firm’s
performance.
Effects of Errors on Financial Statements
According to Kimmons (2017), a financial statement can be any of a number
of documents that a company's accountants prepare for the purpose of illustrating
the company's current financial situation. Accountants may sometimes make
errors in preparing such statements. Furthermore, he described that financial
statements are to present a clear picture of the company’s position to
management, to make effective decisions from an unbiased financial report of
these statements.
34
External stakeholders, specifically investors of a firm, rely heavily on the
financial statements to assess a firm’s worth, while small and medium enterprise
owners or management relies on these statements for effective decision making.
Financial statements are used by external parties; external stakeholders,
government agencies and the general public. Incorrectness of financial statements
can result in these users to lose faith in the business, exhibiting lack of compliance
regarding the accounting principles.
Preparation and Use of Financial Statements by Family-Owned SMEs in
Tanzania
According to Auken (2021), the data gathered from a survey of 150 small
sunflower oil processor business owners and managers located in a region in
Tanzania identified three important variables affecting the use of financial
statements: experience, confidence, and knowledge. Out of all three
characteristics, confidence scored the least in significant association with regard
to the use of financial statements as a variable.
The result showed that experience and knowledge variables are applied
when incorporating financial statements into the decision making process. Based
on the availability of the financial information, decision making in SMEs and its
deployment in various management techniques includes: liquidity management,
profitability, optimal capital structure, cost-benefit analysis, efficient working capital
management, and financial forecasting.

35
Accounting information is generally believed to be useful in decision
making. A study has shown that farmers who rely on financial reports for their
decision-making process perform better than those who do not. Studies have
shown that there are two stages of decision making within the context of loan
decisions. In the first stage of processing, biases caused different evaluation and
judgment of loan information. The results also explained that decisions made in
the second phase of processing affected decision choice by biased conservatism.
Accounting institutions in the United Kingdom and Australia have shown
interest in reducing the multiplicity of accepted accounting principles and
presumably unaccepted practices. Depreciation is a measure of asset value
consumed over a period. Depreciation decreases the amount of an asset used,
hence, decreasing the original cost of that asset. Businesses need to embrace
ambiguity and how to harness this trait to provoke thoughtful debate and balanced
judgments. This correlates with small and medium enterprise owners on their
decision-making process that may affect future business performance, efficiency
of management decisions and maintaining their internal and external stakeholders.
A study had 1,300 stocks from 11 central and eastern European countries
that generated strong gross-profitability premium and inverted liquidity premium.
Some investors, assets managers and fund pickers find it sensible for portfolio
managers to implement some quality strategies in the CEE markets. The
36
investment policy of Russian enterprises not only focused on the investment needs
of the enterprise, but also gave emphasis to the investment management system.
Extending investments is part of financing decisions and subsequently attracts
innovations that result in efficient productions, emergence of new investments and
long-term continuity.
Financing decisions are decisions based on the information on the
statement of financial position. In terms of profitability, the trade-off theory
theorizes a connection between leverage and profitability. These determinants will
help make appropriate capital structure decisions regarding a firm's debt ratio.
Poor decision-making can create negative repercussions in both the individual and
social levels. The findings of their study states that TAM-based groups reported
lower financial biases than those in the CSL-based training group and the control
group. Technological or computer-supported models/interventions only affect a
lower percentage for financing decisions.
Financial decisions are a determinant of business competitiveness. Basic
features that support organizational strategies such as financial analysis, and
planning are not existent in micro and small enterprises. This creates a significant
strain on their financial decisions. Financial decisions is a management of the
capital factor from acquisition until the time of its use. In relation to financial
decisions for SMEs, it is underestimated and not viewed highly. It is further defined
37
that financial decisions are complex, that greatly affects businesses in their
capitals, and operating revenues.
The basis of a sustainable organization is measured by operating decisions,
which, if effective and applied correctly, will result in high performance and better
results. A good strategic and operation management can also affect decisions
under capital budgeting, cost budgeting and increasing overall profits or revenues.
Owners-managers' are the ones whose decision making is most important,
according to the studies. Small and medium enterprise owners' tend to make more
deliberate business decisions that would assist their businesses. This is because
they know more about the business' interests along with their rational, and risk
averse attitude.
Overall Synthesis
Financial statements reflect a company’s financial health within an
operating cycle. It shows the current and noncurrent assets and liabilities, equity,
revenues and expenses. Financial statements represent the financial performance
of a company, which is very useful in determining and analyzing an organization’s
financial position and performance. Overall, financial statements provide
information to management for analytical approach in managing modern business
operations, shareholders to identify and evaluate the efficiency and effectiveness
of the said management, and to creditors to identify the liquidity, profitability and
long-term solvency of a business.
38
Decision-making within a business involves investing, financing and
operation which are all essential in the overall management of a business. It
involves evaluating long-term effects of these decisions, to make timely and
accurate management decisions. Moreover, decisions made by the management
directly involve planning, control, estimates, and guidance to suit modern business
operations applicable to a business.
Incorporating the information from financial statements into the decision-
making process among business owners will affect decisions in profitability,
investment, liquidity, financial forecasting and efficient working capital
management. Financial statement analysis guides external and internal
stakeholders to understand the overall financial health and security of a business.
Consequently, make decisions based on their evaluation.
39
CHAPTER 3
Research Methodology
This chapter included the research design, the population and sample, validation
procedure, the data collection procedure, description of instrument, data analysis
procedure and statistical treatment.
Research Design
This study utilized the quantitative descriptive correlational research design in
the impact of financial statements on the decision making of small and medium enterprise
owners in Pasig City during the fiscal year 2021-2022.
Under descriptive method, correlational research is commonly employed. The
descriptive research methodology is a design wherein events are recorded, described,
interpreted, analyzed, and compared (Castillo, 2002). In correlational research, the aim
is to describe the strength of relationship between two or more events or characteristics
(Sautrock, 2005).
The most common means of obtaining the required information is through the use
of questionnaires that were administered to small and medium enterprise owners. The
researchers believe that this is the most useful method to use because the study aims to
identify the impact of financial statements on the decision making of small and medium
enterprise owners.
Respondents of the Study
The subject of this research had been the small and medium enterprises owners
in Barangay Bagong Ilog and Kapasigan, Pasig City during the fiscal year 2021-2022.
The information gathered had been from Barangay Bagong Ilog office and Barangay
Kapasigan Clearance and Permits office.
The study covered 106 respondents of small and medium enterprise owners which
covers 100% of the total population in Bagong Ilog, Pasig City and 207 respondents of
small and medium enterprise owners which covers 100% of the total population in
Kapasigan, Pasig City.
BARANGAY POPULATION SIZE SAMPLE SIZE PERCENTAGE
Bagong Ilog 106 60 34.09%
Kapasigan 207 116 65.91%
Total 313 176 100%
Table 1. The Respondents of the Study
Table 1 summarizes the distribution of respondents by 34.09% in barangay
Bagong Ilog and 65.91% in barangay Kapasigan, appropriate data on the population and
sample of small and medium enterprise owners within the area of Barangay Bagong Ilog
and Kapasigan.
41
The 60 respondents in barangay Bagong Ilog and 116 respondents in barangay
Kapasigan in total of 176 respondents were chosen by the use of Slovin's formula.
Slovin's formula is a simple random sampling technique formula to estimate sampling
size. It calculates the number of samples required when the population is too large to
directly sample every respondent. To calculate the sample size, given the population size
of 313, which the researchers have counted with a margin of error of 0.05 and a 95%
confidence level, the researchers used the formula below:
𝑁
𝑛=
1 + 𝑁𝑒 2
Where:
n = Number of sample size
N = Population size
e = Margin of error
313
𝑛= 𝑛 = 176
1 + 313 (0.05)2
Moreover, the researchers had gathered the data from the respondents
directly/physically by handing small and medium enterprise owners the survey
questionnaire provided by the researchers and the researchers obtained the survey
questionnaire back as soon as the respondents successfully answered all the questions
required of them to answer.
42
Instrument of the Study
The major data gathering instrument of the study had been a locally constructed
questionnaire to be made/constructed by the researchers under the guidance and
supervision of the thesis adviser. The researchers had been guided by the extensive
review of various related literature about the topic. The instrument to be used is composed
of 3 parts.
The first (1) part of the questionnaire had elicited information about the
demographic profile of the respondents in terms of: age, gender, and line of business.
However, the demographic profile of the respondent is not part of the research. The
researchers simply got the demographic profile to give the reader of the paper a mental
description of the respondents of the study. Which means, it did not have any effect on
the result of the study.
The second (2) part of the instrument had measured the financial statement in terms
of: statement of financial position, statement of comprehensive income and statement of
cash flows.
The third (3) part of the instrument had measured the decision making of small and
medium enterprise owners in terms of: investment decisions, financing decisions, and
operational decisions.
43
Scale Range of Score Verbal Interpretation Descriptive
Interpretation
4 3.26 – 4.00 Strongly Agree Very High Impact
3 2.51 – 3.25 Agree High Impact
2 1.76 – 2.50 Disagree Low Impact
1 1.00 – 1.75 Strongly Disagree Very Low Impact
Table 2. Visual Interpretation of Data
Validation Procedure
The content validity procedure has been utilized in validating the instrument to
find out the degree to which an instrument has an appropriate sample of items for the
construct of financial statement and the construct of decision-making being measured
and adequately covers the construct domains. Essentially, the procedure involved
soliciting judgment of three experts: accounting expert, english expert, and instrument
expert in construction.
The accounting expert has a bachelor’s degree in accounting and is currently
working in an accounting firm. The instrument expert in construction is a Professor in
Pasig Catholic College teaching accounting related courses for both the senior high
school and college department. The English expert is a professor of Psychology in Pasig
Catholic College, who is also recommended by our research professor for her outstanding
English skills and knowledge.
44
The researchers had also sought the guidance of a statistician from Pasig
Catholic College in testing the reliability of the instrument by using Cronbach’s Alpha
Radius from 0 – 1.
Additionally, the instrument had undergone a usability test to evaluate its content
by randomly selecting respondents from the same barangays, Bagong Ilog and
Kapasigan wherein the researchers had randomly select from the remaining 44% of the
population, specifically 137, in which only 18 people had been chosen to take part in the
pilot testing of the questionnaire. The researchers had randomly selected the 18
respondents with paper draw lots, 10 from barangay Kapasigan and 8 from barangay
Bagong Ilog. Thus, these respondents had no longer been included during the final
distribution of the research instrument.
Furthermore, the content of the instrument had to be unanimously approved by
the validators during the final draft of the study.
Cronbach Alpha
Cronbach’s Alpha is a measure of internal consistency, that is, how closely related
a set of items are as a group. It is considered to be a measure of scale reliability,
technically speaking, Cronbach’s Alpha is not a statistical test - it is a coefficient of
reliability (or internal consistency). Cronbach’s Alpha shows how closely related a set of
items are as a group.
45
Factors Cronbach’s Alpha Standard Deviation Number of Items
Statement of Financial 0.912 0.692 12

Position
Statement of 0.912 0.655 10

Comprehensive Income
Statement of Cash Flow 0.913 0.638 10
Statement of Retained 0.912 0.648 8

Earnings
Investing 0.912 0.626 10
Financing 0.912 0.678 17
Operations 0.912 0.664 13
Table 3: Result of Cronbach Alpha
Cronbach’s Alpha (α) was determined to measure the reliability or consistency of
the instrument used in the study. The alpha coefficient are the following; Statement of
Financial Position (α = 0.912, SD = 0.692), Statement of Comprehensive Income (α =
0.912, SD = 0.655), Statement of Cash Flow (α = 0.913, SD = 0.638), Statement of
Retained Earnings (α = 0.912, SD = 0.648), Investing (α = 0.912, SD = 0.626), Financing
(α = 0.912, SD = 0.678), and Operations (α = 0.912, SD = 0.664). The high value for all
items suggests that the items have relatively high internal consistency. The reliability
coefficient of 0.90 or higher is considered “excellent” in most research studies. The
generally accepted rule is that α of 0.8-0.9 indicates a good level of reliability, and 0.9 or
greater indicates excellent level of reliability. (Bobbitt, 2021)
46
Data Gathering Procedure
The mode of data gathering used in this survey was the questionnaire method.
In gathering the data, the researchers carried out the following procedure. A letter had
been sent to the Dean of Pasig Catholic College for her information and approval of the
research to be conducted. The researchers had stated their name, school, and reason/s
on conducting the study. The content of the letter also included the title of the study, brief
description of the study, and benefits derived from the research. Additionally, it contained
information about the respondents of the study in Barangay Bagong Ilog and Barangay
Kapasigan, Pasig City during the fiscal year of 2021.
Upon approval of the Dean, letters had been sent to each of the Barangays
addressed to the Barangay Chairmans seeking for their permissions to conduct a
research in their respective barangays, Bagong Ilog and Kapasigan. The letters included
similar details in the letter submitted to the Dean of Pasig Catholic College.
Subsequently, another letter had been made and had been addressed to the
respondents stating the researchers’ purpose, title of the study, and basic information of
the researchers including the reasons and needs in conducting the research, along with
asking for their kind participation and cooperation. The letter had been attached to each
survey questionnaire thereafter producing the letters.
47
Data Processing and Statistical Treatment
Data on the personal characteristics of the respondents had been gathered
through the survey questionnaire. Each of the respondents had been given a structured
set of questions which have been formulated by the researchers. Data about the attitude,
behavior of the respondents had also been gathered through the survey questionnaire.
The data gathered had been manually encoded into the Microsoft Excel and subsequently
converted to statistical packages or social sciences (SPSS).
The data collected had been tabulated and processed using the statistical
packages or social sciences (SPSS). In order to analyze and interpret the data gathered,
the following statistical measures have been used: the impact of financial statements on
the decision making of small and medium enterprise owners in Pasig City has been
analyzed using a 4-point Likert scale.
1. Frequency Counts and Percentage Method
For the demographic profile of the respondents, frequency counts and
percentage method had been used.
The formula for percentage is stated below:
% = f / n x 100
Where:
% = Percentage
48
F = Frequency
N = Total number of cases
100 = Constant value
2. Weighted Mean and Standard Deviation
To find out the impact of financial statements of small and medium enterprise
owners in Pasig City, weighted mean and standard deviation had been used with
regards to the specific problem 1.
The formula for weighted mean is stated below:
WM= WF/N
Where:
WM = Weighted mean
WF = Weighted frequency
N = Total number of respondents
The formula for standard deviation (population) is stated below:
Where:
x = Value in data distribution
49
μ = Population mean
N = Total number of observations
Similarly, this method was used to determine the decision making of the
owners of small businesses in Pasig City, weighted mean and standard deviation
with regards to specific problem 2.
3. Multiple Regression
This was used to identify the influence of the factors of the independent
variable which is financial statement to the dependent variable which is decision-
making for specific problem 3.
The formula for Multiple Regression is stated below:
Where:
50
4. Pearson’s r Correlation Coefficient
This was used to determine if there is a significant relationship between the
financial statement and decision making of small and medium owners of Pasig
City.
The formula of Person r is stated below:
𝑁∑ 𝑥𝑦 − (∑ 𝑥)(∑ 𝑦)
𝑟=
√[𝑁 ∑ 𝑥 2 − ((∑ 𝑥)2 ][𝑁 ∑ 𝑦 2 − (∑ 𝑦)2
Where:
N= number of sample size
∑ 𝑥𝑦= sum of the product of the financial statements and decision-making
∑ 𝑥= sum of financial statements
∑ 𝑦= sum of decision-making
∑ 𝑥2= sum of squared of financial statements
∑ 𝑦2= sum of squared of decision-making
51
CHAPTER 4
Presentation, Analysis and Interpretation of Data
This chapter summarizes and presents the result of the data analysis. The results
are presented in a straightforward and unbiased way. It will discuss the data resulting
from the questionnaire answered by 176 respondents from the owners of the small-
medium enterprises.
Presentation of Data
Problem 1. Description of Financial Statements of SMEs Owners in Pasig City.
The data gathered and presented in problem 1 brings forth results of the data
collected pertaining to the description of Financial Statements of SME Owners in Pasig
City measure in terms of Statement of Financial Position, Statement of Comprehensive
Income, Statement of Cash Flow, and Statement of Retained Earnings from the
responses of the owners of SMEs.
Financial Statements contain information about the relationship between financial
facts and figures shown in a set of financial statements (Anojan, 2020). The information
interprets the financial position, financial performance, and overall financial health of a
business. A reliable and accurate financial statement may give insights about the
profitability, liquidity, and operational efficiency of a business as a basis for the users of
financial statements.
Table 4. Description of Financial Statements of SMEs Owners in Pasig City in terms of:
Statement of Financial Position
Statement of Financial Position Weighted Standard Verbal Interpretation

Mean Deviation
1. It helps the business owner assess whether to 3.55 0.52 Strongly Agree
dispose of the current plant, property, or equipment.
2. It helps the business owner assess whether to invest 3.44 0.50 Strongly Agree
in long-term investments like stocks, bonds, and
mutual funds.
3. It helps the business owner to evaluate whether there 3.53 0.55 Strongly Agree
is too much, or too little capital tied up to its
permanent investments.
4. It helps the business owner identify the need for 3.53 0.53 Strongly Agree
additional capitalization.
5. It helps the business owner assess whether to 3.43 0.60 Strongly Agree
proceed for a bank loan to settle financial expenses.
6. It helps the business owner identify if they are able to 3.48 0.61 Strongly Agree
pay long-term obligations.
7. It helps the business owner identify whether they can 3.46 0.63 Strongly Agree
further acquire additional loans from other parties.
8. It helps the business owner assess whether the 3.45 0.52 Strongly Agree
current assets are more than its current liabilities.
9. It helps the business owner assess whether they 3.44 0.56 Strongly Agree
should invest in short-term investments like treasury
bills, government bonds, and money market
accounts.
10. It helps the business owner identify the 3.48 0.58 Strongly Agree
liquidity of current assets to settle short-term
obligations.
11. It helps the business owner assess if the most liquid 3.49 0.59 Strongly Agree
assets can pay its short-term debt obligations.
12. It helps the business owner identify whether to 3.55 0.52 Strongly Agree
increase the volume of inventory to cater the
customers’ needs and wants.
Overall weighted mean and interpretation 3.49 0.56 Strongly Agree
The data gathered and presented in table 4 brings forth the results of data collected
pertinent to the small and medium enterprise owners in Barangay Bagong Ilog, and
53
Barangay Kapasigan, Pasig City agreement on the statements that measured the
description of financial statements of SMEs in Pasig City in terms of Statement of
Financial Position. From the findings, the respondents strongly agreed that the statement
of financial position has helped the business owner assess whether to dispose of the
current plant, property, or equipment shown by the weighted mean of 3.55 and standard
deviation of 0.52, strongly agreed that it helps the business owner to assess whether to
invest in long-term investments like stocks, bonds, and mutual funds shown by the
weighted mean of 3.44 and standard deviation of 0.50, strongly agreed that it helps the
business owner to evaluate whether there is too much or too little capital tied up to its
permanent investments shown by the weighted mean of 3.53 and standard deviation of
0.55, strongly agreed that it helps the business owner identify the need for additional
capitalization shown by the weighted mean of 3.53 and standard deviation of 0.53,
strongly agreed it helps the business owner assess whether to proceed for bank loan to
settle financial expenses shown by the weighted mean of 3.43 and standard deviation of
0.60, strongly agreed that it helps the business owner identify if they are able to pay long-
term obligations shown by the weighted mean of 3.48 and standard deviation of 0.61,
strongly agreed it helps the business owner identify whether they can further acquire
additional loans from other parties shown by the weighted mean of 3.46 and standard
deviation of 0.63, strongly agreed it helps the business owner assess whether the current
assets are more than its current liabilities shown by the weighted mean of 3.45 and
standard deviation of 0.52, strongly agreed that it helps the business owner assess
whether they should invest in short-term investments like treasury bills, government
bonds, and money market accounts shown by the weighted mean of 3.44 and standard
54
deviation of 0.56, strongly agreed that it helps the business owner identify the liquidity of
current assets to settle short-term debt obligations shown by the weighted mean of 3.48
and standard deviation of 0.58, strongly agreed that it helps the business owner assess
if the most liquid assets can pay its short-term debt obligations shown by the weighted
mean of 3.49 and standard deviation of 0.59, strongly agreed that it helps the business
owner identify whether to increase the volume of inventory to cater the customers’ needs
and wants shown by the weighted mean of 3.55 and standard deviation of 0.52. In
conclusion, the weighted average of the description of financial statements of small and
medium enterprises in terms of statement of financial position resulted with an overall
weighted mean of 3.49 and standard deviation of 0.56, which was strongly agreed and
has a very high impact. Based on the data presented above, the use of the financial
statements, specifically the statement of financial position has helped the respondents.
The statement of financial position specifically shows the health or the snapshot of the
company (Thakur, 2022). It contains the assets, liabilities, equities, and debt that helps
the owner to identify, evaluate, and assess the company’s current condition (Vaidya,
2022). To support this, it is included in a company’s financial statements and provides
users with vital information about the company’s health. The statement of financial
position must be prepared in accordance with the accounting standards in effect in the
company’s jurisdiction.
55
Statement of Comprehensive Income Weighted Standard Verbal Interpretation

Mean Deviation
1. It helps the business owner assess if it 3.53 0.55 Strongly Agree

would incur a gain or loss from
lending principal loans to other parties.
2. It helps the business owner assess the 3.47 0.54 Strongly Agree
gain or loss derived from the sale of
plant, property, and equipment.
3. It helps the business owner assess 3.45 0.59 Strongly Agree

interests derived from obligations.

income generation in relation to asset
efficiency.

income generation in relation to equity
efficiency.
expenses incurred from income taxes.
7. It helps the business owner forecast 3.50 0.53 Strongly Agree

income generation acquired from
interest.
8. It helps the business owner to cut 3.57 0.55 Strongly Agree

costs if needed be with expenses with
the use of financial ratios.
9. It helps the business owner evaluate 3.44 0.57 Strongly Agree

the effects of procurements like
supplies and other assets.
10. It helps the business owner to identify 3.53 0.52 Strongly Agree
if they are sticking to their values in
business in terms of employee
salaries, benefits and incentives.
56
Comprehensive Income. From the findings, the respondents strongly agreed that the
statement of comprehensive income has helped the business owner assess if it would
incur a gain or loss from lending principal loans to other parties shown by the weighted
owner to assess the gain or loss derived from the sale of plant, property, and equipment
shown by the weighted mean of 3.47 and standard deviation of 0.54, strongly agreed that
it helps the business owner to assess interests derived from obligations shown by the
business owner to assess income generation in relation to asset efficiency shown by the
weighted mean of 3.46 and standard deviation of 0.57, strongly agreed it helps the
business owner assess income generation in relation to equity efficiency shown by the
weighted mean of 3.44 and standard deviation of 0.59, strongly agreed that It helps the
business owner identify the expenses incurred from income taxes shown by the weighted
mean of 3.48 and standard deviation of 0.54, strongly agreed that It helps the business
owner forecast income generation acquired from interest shown by the weighted mean of
3.50 and standard deviation of 0.53, strongly agreed that It helps business owner to cut
costs if needed be with expenses with the use of financial ratios shown by the weighted
owner evaluate the effects of procurements like supplies and other assets shown by the
57
business owner to identify if they are sticking to their values in business in terms of
employee salaries, benefits and incentives shown by the weighted mean of 3.53 and
standard deviation of 0.52. In conclusion, the weighted average of the description of
financial statements of small and medium enterprises in terms of statement of
comprehensive income resulted in an overall weighted mean of 3.49 and standard
deviation of 0.56, which was strongly agreed and has a very high impact. Based on the
data presented above, the use of the financial statements, specifically the statement of
comprehensive income has helped the respondents. The business owners are statement
of comprehensive income oriented (Davidson, 2020). It indicates information about the
revenue and expenses, gain or loss incurred in an accounting period to direct business
owners to recognize and assess financial performance. Consequently, it gives insights
from comparing past performance with the current operation in relation to maximizing
profitability of their business.
58
Statement of Cash Flow
Statement of Cash Flow Weighted Mean Standard Verbal Interpretation

Deviation

receipts from long-term investments.
2. It helps the business owner decide if they 3.52 0.56 Strongly Agree
should invest more in equipment.
3. It helps the business owner to decide if 3.41 0.59 Strongly Agree

they should sell their plant, property or
equipment.
4. It helps the business evaluate the effects of 3.49 0.56 Strongly Agree
procurements like buying a new machine.
5. It helps the business owner assess capital 3.41 0.61 Strongly Agree
acquisitions like asset or stock acquisition
and merger.
6. It helps the business owner assess long- 3.41 0.61 Strongly Agree
term obligations derived from capital
acquisitions.
7. It helps the business owner assess the 3.33 0.63 Strongly Agree
dividends declared and paid to
shareholders.

9. It helps the business owner if the business 3.46 0.54 Strongly Agree
has the ability to operate in both short term
and long term.
10. It helps the business owner pinpoint when 3.48 0.57 Strongly Agree
and where their money is coming from.
description of financial statements of SMEs in Pasig City in terms of Statement of Cash
59
Flow. From the findings, the respondents strongly agreed that the statement of cash flow
has helped the business owner forecast receipts from long-term investments shown by
the weighted mean of 3.48 and standard deviation of 0.52, strongly agreed that it helps
the business owner decide if they should invest more in equipment shown by the weighted
owner to decide if they should sell their plant, property or equipment shown by the
business evaluate the effects of procurements like buying a new machine shown by the
business owner assess capital acquisitions like asset or stock acquisition and merger
It helps the business owner assess long-term obligations derived from capital acquisitions
It helps the business owner assess the dividends declared and paid to shareholders
shown by the weighted mean of 3.33 and standard deviation of 0.63, strongly agreed
that It helps the business owner forecast receipts from long-term investments shown by
the mean of 3.39 and standard deviation of 0.66, strongly agreed that It helps the business
owner if the business has the ability to operate in both short term and long term shown
by the weighted mean of 3.46 and standard deviation of 0.54, strongly agreed that It helps
the business owner pinpoint when and where their money is coming from shown by the
weighted mean of 3.48 and standard deviation of 0.57. In conclusion, the weighted
average of the description of financial statements of small and medium enterprises in
terms of statement of cash flow resulted with an overall weighted mean of 3.44 and
60
standard deviation of 0.59, which was strongly agreed and has a very high impact. Based
on the data presented above, the use of the financial statements, specifically the
statement of cash flow has helped the respondents. This supports the study of Kateryna
(2021), that optimizing cash flow is essential to maximize financial stability and increase
solvency. It is stated that optimizing cash flows includes maximizing spending of money
funds as efficiently as possible, considering the involvement of the money supply usage
in the conditions of scarcity of productive resources. The goal of the statement of cash
flow is to show what occurred to a company’s cash during a specific time period, known
as the accounting period. It displays an organization’s ability to operate in the short and
long term, based on the amount of money moving in and out of the company (Stobierski,
2020).
61
Statement of Retained Earnings
Statement of Retained Earnings Weighted Mean Standard Verbal Interpretation

Deviation
1. It makes the business owner identify if 3.52 0.56 Strongly Agree

they should focus on product
development or develop a new one.
2. It helps the business owner forecast the 3.42 0.58 Strongly Agree
value of gain or loss from the sale of new
shares of stocks investments like stocks,
bonds, and mutual funds.

whether they should issue new shares of
stocks.

whether they should reacquire
outstanding shares of stocks.
5. It guides the business owner whether 3.38 0.62 Strongly Agree

they can have possible mergers,
acquisition, or partnership.

current reserves on future losses,
guarantees, and loans.
can afford to declare and pay dividends
this year.

whether the current operations are
retaining income or not.
Retained Earnings. From the findings, the respondents strongly agreed that the statement
62
of retained earnings has helped the business owner identify if they should focus on
product development or develop a new one shown by the weighted mean of 3.52 and
standard deviation of 0.56, strongly agreed that it helps the business owner forecast the
value of gain or loss from the sale of new shares of stocks, investments like stocks, bonds,
and mutual funds shown by the weighted mean of 3.42 and standard deviation of 0.58,
strongly agreed that It helps the business owner assess whether they should issue new
shares of stocks shown by the weighted mean of 3.43 and standard deviation of 0.57,
strongly agreed that it helps the business owner it helps the business owner assess
whether they should reacquire outstanding shares of stocks shown by the weighted mean
of 3.35 and standard deviation of 0.61, strongly agreed It guides the business owner
whether they can have possible mergers, acquisition, or partnership. shown by the
business owner assess current reserves on future losses, guarantees, and loans shown
business owner decide if they can afford to declare and pay dividends this year shown by
the weighted mean of 3.42 and standard deviation of 0.61, strongly agreed that It helps
the business owner assess whether the current operations are retaining income or not
shown by the weighted mean of 3.48 and standard deviation of 0.57. In conclusion, the
weighted average of the description of financial statements of small and medium
enterprises in terms of statement of retained earnings resulted with an overall weighted
mean of 3.44 and standard deviation of 0.59, which was strongly agreed and has a very
high impact. Based on the data presented above, the use of the financial statements,
specifically the statement of retained earnings has helped the respondents. The
63
statement of retained earnings shows the retention of profits after the dividend payments
and deduction of expenses (Le et. Alia, 2020). It plays a vital role in assessing the future
growth of a business with regards to the remaining net income. The earnings retained
accumulates since the start up of a business that can help business owners keep track
of these earnings in their upcoming business operation.
Table 8. Overall Results of the Description of Financial Statements of SMEs Owners in

Pasig City.
The data gathered and presented in Table 8 brings forth the result of the data
collected relevant to the overall mean of every indicator regarding financial statements. It
showed that the respondents strongly agreed with the statement that the description of
the financial statements is highly impactful in terms of statement of financial position,
statement of comprehensive income, statement of cash flows and statement of retained
earnings which has an overall weighted mean of three and forty-seven hundredth (3.47)
and standard deviation of 0.58. As a result, all of the factors above regarding financial
statements are informative, this data supports the study written by Anojan (2020) which
states that financial statements analyzes relationship among various financial facts and
64
figures given in a set of financial statements, and thereof gain insights into the profitability,
financial position, liquidity and operational efficiency of a business to assess its financial
health and future prospects.
Relating to a study by Hasanaj and Kuqi (2019), wherein financial statements are
defined to contain and give information about assets, liabilities, shareholder equity,
income, expenditure, and cashflow. With the use of financial statements alongside
accounting, it can help owners and shareholders to better think and decide whether they
are making profit from their investments or not. Furthermore, with the use of financial
statement analysis, the owners would have assurance in the company’s financial
condition and its operations during and in-between periods along with the future trends of
the enterprise. As financial statements have significant information that are used for basis
in making decisions either internally or externally.
Problem 2. Extent of impact in the decision-making of SMEs Owners in Pasig City
The data gathered and presented in problem 2 brings forth results of the data
collected pertaining to the Extent of impact in the decision-making of SMEs Owners in
Pasig City in terms of Investing Decisions, Financing Decisions, and Operation Decisions
from the responses of the owners of SMEs.
The findings of the study made by Rodgers (2012), in which there are two stages
of cognitive model of decision-making within the context of loan decisions: conceptually
driven and data-driven in which the second phase had a process in which greatly affected
65
the decisions. The financial information provided often gives the owners and creditors the
ability to make big decisions.
Table 9. Extent of impact in the decision-making of SMEs Owners in Pasig City in terms
of: Investing Decisions
Investing Decisions Weighted Mean Standard Verbal Interpretation

Deviation
1. It helps the business owner assess whether 3.55 0.52 Strongly Agree
to dispose of the current plant, property, or
equipment.
2. It helps the business owner assess whether 3.44 0.50 Strongly Agree
to invest in long-term investments like
stocks, bonds, and mutual funds.
3. It helps the business owner to evaluate 3.53 0.55 Strongly Agree

whether there is too much or too little
capital tied up to its permanent
investments.
4. It helps the business owner assess if it 3.53 0.55 Strongly Agree

would incur a gain or loss from lending
principal loans to other parties.
5. It helps the business owner assess the gain 3.47 0.54 Strongly Agree
or loss derived from the sale of plant,
property, and equipment.

8. It helps the business owner to decide if 3.41 0.59 Strongly Agree

they should sell their plant, property or
equipment.
9. It helps the business evaluate the effects of 3.49 0.56 Strongly Agree
10. It makes the business owner identify if they 3.52 0.56 Strongly Agree
should focus on product development or
develop a new one.
66
Barangay Kapasigan, Pasig City agreement on the statements that measured the extent
of impact in the decision-making of small and medium enterprise owners in terms of
investing decisions. From the findings, the respondents strongly agreed that the extent of
impact in the decision-making of small and medium enterprise owners in terms of
investing decisions helps the business owner assess whether to dispose of the current
plant, property, or equipment shown by the weighted mean of 3.55 and standard deviation
of 0.52, strongly agreed that it helps the business owner assess whether to invest in long-
term investments like stocks, bonds, and mutual funds shown by the weighted mean of
3.44 and standard deviation of 0.50, strongly agreed that it helps the business owner to
evaluate whether there is too much or too little capital tied up to its permanent investments
it helps the business owner assess if it would incur a gain or loss from lending principal
loans to other parties shown by the weighted mean of 3.53 and standard deviation of
0.55, strongly agreed that it helps the business owner assess the gain or loss derived
from the sale of plant, property, and equipment shown by the weighted mean of 3.47 and
standard deviation of 0.54, strongly agreed that it helps the business owner forecast
receipts from long-term investments shown by the weighted mean of 3.48 and standard
deviation of 0.52, strongly agreed that it helps the business owner decide if they should
invest more in equipment shown by the weighted mean of 3.52 and standard deviation of
0.56, strongly agreed that it helps the business owner to decide if they should sell their
plant, property or equipment shown by the weighted mean of 3.41 and standard deviation
67
of 0.59, strongly agreed that it helps the business evaluate the effects of procurements
like buying a new machine shown by the weighted mean of 3.49 and standard deviation
of 0.56, strongly agreed that it makes the business owner identify if they should focus on
product development or develop a new one shown by the weighted mean of 3.52 and
standard deviation of 0.56. In conclusion, the weighted average of the extent of impact in
the decision-making of small and medium enterprise owners in Pasig city in terms of
investing decisions resulted with an overall weighted mean of 3.49 and standard deviation
of 0.55, which was strongly agreed and has a very high impact. Based on the data
presented above, the extent of impact in the decision-making of small and medium
enterprise owners in Pasig city in terms of investing decisions has relatively very high
impact. This supports the study of Zaremba (2014), in which data from performance
portfolios are significantly affected by some quality effects for either investment decisions
or academic researchers. In relation to SMEs, it is important for investment decisions to
always have liquidity or can be liquidated. It is said that investors look for key metrics, for
them to invest or allow a loan to a business, in which the owner must work with the
controller to track and improve its financial statements (Najjar, 2021).
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of: Financing Decisions
Financing Decisions Weighted Mean Standard Verbal Interpretation

Deviation
1. It helps the business owner identify the need for 3.53 0.53 Strongly Agree
additional capitalization.
2. It helps the business owner assess whether to proceed 3.43 0.60 Strongly Agree
for a bank loan to settle financial expenses.
3. It helps the business owner identify if they are able to 3.48 0.61 Strongly Agree
pay long-term obligations.
4. It helps the business owner identify whether they can 3.46 0.63 Strongly Agree
further acquire additional loans from other parties.
5. It helps the business owner assess interests derived 3.45 0.59 Strongly Agree
from obligations.
6. It helps the business owner assess income generation 3.46 0.57 Strongly Agree
in relation to asset efficiency.
7. It helps the business owner assess income generation 3.44 0.59 Strongly Agree
in relation to equity efficiency.
8. It helps the business owner assess capital acquisitions 3.41 0.61 Strongly Agree
like asset or stock acquisition and merger.
9. It helps the business owner assess long-term 3.41 0.61 Strongly Agree
obligations derived from capital acquisitions.
10. It helps the business owner assess the dividends 3.33 0.63 Strongly Agree
declared and paid to shareholders.
11. It helps the business owner forecast receipts from long- 3.39 0.66 Strongly Agree
term investments.
12. It helps the business owner forecast the value of gain 3.42 0.58 Strongly Agree
or loss from the sale of new shares of stocks.
should issue new shares of stocks.
should reacquire outstanding shares of stocks.
15. It guides the business owner whether they can have 3.38 0.62 Strongly Agree
possible mergers, acquisition, or partnership.
16. It helps the business owner assess current reserves on 3.51 0.58 Strongly Agree
future losses, guarantees, and loans.
17. It helps the business owner decide if they can afford to 3.42 0.61 Strongly Agree
declare and pay dividends this year.
69
financing decisions. From the findings, the respondents strongly agreed that the extent of
impact in the decision-making of small and medium enterprise owners in terms of
financing decisions helps the business owner identify the need for additional capitalization
It helps the business owner assess whether to proceed for a bank loan to settle financial
expenses shown by the weighted mean of 3.43 and standard deviation of 0.60, strongly
agreed that It helps the business owner identify if they are able to pay long-term
obligations shown by the weighted mean of 3.48 and standard deviation of 0.61, strongly
agreed that It helps the business owner identify whether they can further acquire
additional loans from other parties shown by the weighted mean of 3.46 and standard
deviation of 0.63, strongly agreed that It helps the business owner assess interests
derived from obligations shown by the weighted mean of 3.45 and standard deviation of
0.59, strongly agreed that It helps the business owner assess income generation in
relation to asset efficiency shown by the weighted mean of 3.46 and standard deviation
of 0.57, strongly agreed that It helps the business owner assess income generation in
relation to equity efficiency shown by the weighted mean of 3.44 and standard deviation
of 0.59, strongly agreed that It helps the business owner assess capital acquisitions like
asset or stock acquisition and merger shown by the weighted mean of 3.41 and standard
deviation of 0.61, strongly agreed that It helps the business owner assess long-term
70
obligations derived from capital acquisitions shown by the weighted mean of 3.41 and
standard deviation of 0.61, strongly agreed that It helps the business owner assess the
dividends declared and paid to shareholders shown by the weighted mean of 3.33 and
standard deviation of 0.63, strongly agreed that It helps the business owner forecast
receipts from long-term investments shown by the weighted mean of 3.39 and standard
deviation of 0.66, strongly agreed that It helps the business owner forecast the value of
gain or loss from the sale of new shares of stocks shown by the weighted mean of 3.42
and standard deviation of 0.58, strongly agreed that It helps the business owner assess
whether they should issue new shares of stocks shown by the weighted mean of 3.43
and standard deviation of 0.57, strongly agreed that It helps the business owner assess
whether they should reacquire outstanding shares of stocks shown by the weighted mean
of 3.35 and standard deviation of 0.61, strongly agreed that It guides the business owner
whether they can have possible mergers, acquisition, or partnership shown by the
business owner assess current reserves on future losses, guarantees, and loans shown
business owner decide if they can afford to declare and pay dividends this year shown by
the weighted mean of 3.42 and standard deviation of 0.61. In conclusion, the weighted
average of the extent of impact in the decision-making of small and medium enterprise
owners in Pasig city in terms of financing decisions resulted with an overall weighted
mean of 3.43 and standard deviation of 0.60, which was strongly agreed and has a very
high impact. Based on the data presented above, the extent of impact in the decision-
making of small and medium enterprise owners in Pasig city in terms of financing
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decisions has a relatively very high impact. Financing decisions emphasize long-term
investment acquisitions, shareholder returns, debt and equity financing (Sule, 2021). It
provides business owners information on the portion of their assets that have been raised
from obligations and invested capital. It is said that financing decisions involve leverage
and profitability, and a positive relationship between these factors will employ more debt
and equity financing (capital structure) to finance the business’ operation and investment
activities.
72
of: Operation Decisions
Operation Decisions Weighted Mean Standard Verbal Interpretation

Deviation
current assets are more than its current liabilities.
bills, government bonds, and money market accounts.
obligations.
4. It helps the business owner assess if the most liquid 3.49 0.59 Strongly Agree
assets can pay its short-term debt obligations.
5. It helps the business owner identify whether to 3.55 0.52 Strongly Agree
increase the volume of inventory to cater the
7. It helps the business owner forecast income 3.50 0.54 Strongly Agree
generation acquired from interest.
8. It helps the business owner to cut costs if needed be 3.57 0.55 Strongly Agree
with expenses with the use of financial ratios.
9. It helps the business owner evaluate the effects of 3.44 0.57 Strongly Agree
procurements like supplies and other assets.
10. It helps the business owner to identify if they are 3.53 0.52 Strongly Agree
sticking to their values in business in terms of
employee salaries, benefits and incentives.
11. It helps the business owner if the business has the 3.46 0.54 Strongly Agree
ability to operate in both short term and long term.
12. It helps the business owner pinpoint when and where 3.48 0.57 Strongly Agree
their money is coming from.
current operations are retaining income or not.
73
operation decisions. From the findings, the respondents strongly agreed that the extent
operation decisions helps the business owner assess whether the current assets are
more than its current liabilities shown by the weighted mean of 3.45 and standard
deviation of 0.52, strongly agreed that It helps the business owner assess whether they
should invest in short-term investments like treasury bills, government bonds, and money
market accounts shown by the weighted mean of 3.44 and standard deviation of 0.56,
strongly agreed that It helps the business owner identify the liquidity of current assets to
settle short-term obligations shown by the weighted mean of 3.48 and standard deviation
of 0.58, strongly agreed that It helps the business owner assess if the most liquid assets
can pay its short-term debt obligations shown by the weighted mean of 3.49 and standard
deviation of 0.59, strongly agreed that It helps the business owner identify whether to
increase the volume of inventory to cater the customers’ needs and wants shown by the
business owner identify the expenses incurred from income taxes shown by the weighted
owner forecast income generation acquired from interest shown by the weighted mean of
3.50 and standard deviation of 0.54, strongly agreed that It helps the business owner to
cut costs if needed be with expenses with the use of financial ratios shown by the
74
business owner evaluate the effects of procurements like supplies and other assets
It helps the business owner to identify if they are sticking to their values in business in
terms of employee salaries, benefits and incentives shown by the weighted mean of 3.53
and standard deviation of 0.52, strongly agreed that It helps the business owner if the
business has the ability to operate in both short term and long term shown by the weighted
owner pinpoint when and where their money is coming from shown by the weighted mean
of 3.48 and standard deviation of 0.57, strongly agreed that It helps the business owner
assess whether the current operations are retaining income or not shown by the weighted
mean of 3.48 and standard deviation of 0.57. In conclusion, the weighted average of the
extent of impact in the decision-making of small and medium enterprise owners in Pasig
city in terms of operation decisions resulted with an overall weighted mean of 3.49 and
standard deviation of 0.55, which was strongly agreed and has a very high impact. Based
on the data presented above, the extent of impact in the decision-making of small and
medium enterprise owners in Pasig city in terms of operation decisions has relatively very
high impact. Operation decisions should always be in correlation with the business
objectives with the cost of the actions involved (Kuruppuge and Gregar, 2020). It is said
that operation decisions are resources being utilized in the current operation to maximize
profit efficiency. In order for the business owners to cope with the demand and
competitions, operation decisions are vital that would assist the growth of their
businesses.
75
Table 12. Overall Results of the Extent of Impact in the Decision-Making of Small
and Medium Enterprise Owners in Pasig City.
The data gathered and presented in Table 12 brings forth the result of the data
collected relevant to the overall mean of every indicator regarding decision-making. It
showed that the respondents strongly agreed with the statement that the extent of impact
in the decision-making of the small and medium and enterprise owners are highly
impactful in terms of investing, financing and operation decisions which has an overall
weighted mean of three and forty-seven hundredths (3.47). As a result, all of the factors
above regarding decision-making are highly impactful, this data supports the study written
by Mosqueda, Salazar, and Soto (2012) which states that decision-making within a
business affects a firm at all levels to be able to attain organizational goals, financial
decisions, and to enhance the overall company’s growth.
Relating to the study of Kuruppuge and Gregar (2020), business
owners/managers’ decisions are most important as they are based on rational, risk averse
and deliberate business decisions that would assist the growth of their business.
76
Moreover, decisions made in the business must always be connected or aligned to its
objectives along with their rationale. This means considering decisions which include key
indicators such as costs of action, strategic management, operation management and
financing management. As the decision-making process involves selection of the best
alternative, ensures continuity of business and efficient utilization of resources.
Problem 3. Significant relationship of financial statements and decision-making of
small and medium owners in Pasig City.
Table 13. Multiple Regression Analysis on the Financial Statement that affect the
Decision-Making of Small and Medium Enterprise Owners in Pasig City
The data presented and gathered in table 13 showed the factors in determining
the financial statements and its significant impact in the decision making of small and
77
medium enterprise owners. A multiple regression was used to determine whether
financial statements had a significant effect in the decision making of small and medium
enterprise owners. A significant regression equation was found (F(4, 171) = 10406.424,
p value = 0.000), with an overall R squared of .996. The value of R squared (R2 = .996)
denotes that 99.6% of the decisions made by the small and medium enterprise owners
are impacted by the financial statements. The respondents agreed that the financial
statements significantly impacted decision-making by Statement of Financial Position (β
= 0.301, p = 0.000), Statement of Comprehensive Income (β = 0.261, p = 0.000),
Statement of Cash Flow (β = 0.246, p = 0.000) and Statement of Retained Earnings (β =
0.171, p = 0.000).
Based on the data presented above, it shows that the factors of financial
statements are highly impactful to the decision-making of the small and medium
enterprise owners specifically, statement of financial position, statement of
comprehensive income, statement of cash flow and statement of retained earnings.
Incorporating financial statements into the decision-making process employs liquidity
management, profitability, optimal capital structure, cost-benefit analysis, efficient
working capital management, and financial forecasting (Auken, 2021). It is said that
utilizing the information from financial statements requires a business owner’s knowledge,
experience and confidence when making their decision-making process. Furthermore,
the figures and amounts from the financial statements are vital when making sound
decision making in many areas and overall performance of a business.
78
Table 14. Correlation Analysis on Financial Statements and Decision-Making
Pearson r correlation was used to determine whether there is a relationship
between financial statement and decision-making. Table 14 shows that there is a very
high correlation between financial statements, decision making (r = 0.911). The p - value
= 0.000 generated from the table explains that the researchers have enough evidence to
show that factors of decision making were greatly impacted by financial statements. The
coefficient of determination (R2 = 0.874) denotes that 87.4% of decision making are
attributed to financial statements. This code supports the study of Auken (2014), wherein
the use of financial statements is an essential support for decision making and is
correlated with the company’s operational and strategic goals. Thus, through the use of
financial statements as a tool for decision making it will greatly improve and support a
company’s operational and strategic goals.
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CHAPTER 5
Summary of Findings, Conclusions and Recommendations
This chapter summarizes the entire study which contains an overview of the
research, it gives a brief restatement of the problem, the procedures, and findings.
Summary of the Study
This study was focused on the Impact of Financial Statements on the Decision
Making of Small and Medium Enterprise Owners in Pasig City. The major objective of this
study is to look into the impact of financial statements on the decision making of small
and medium enterprise owners and to know how each factor of the financial statements
impact the decision making of the small and medium enterprise owners. Its contribution
is to give rise to insight of financial information to existing and potential investors,
creditors, customers, employees, and management regarding overall forecasting
business decisions. Moreover, this study was used to help to know if financial statements
are reliable tools for decision making for small and medium enterprises.
This study is a quantitative research, descriptive type, and correlational survey.
The instrument used was a locally constructed and close-ended questionnaire. For pilot
testing, it was addressed to the small and medium enterprise owners in Pasig City limited
to Barangay Bagong Ilog and Barangay Kapasigan wherein the researchers randomly
selected from the remaining 44% of the population, specifically 137, in which only 18
people had been chosen, 10 from barangay Kapasigan and 8 from barangay Bagong Ilog,
thus no longer included in the final distributed research instrument. For validated and
approved questionnaires, it was addressed to the small and medium enterprise owners
in Pasig City limited to Barangay Bagong Ilog and Barangay Kapasigan with a total of 176
respondents in total. Hence, the statistical tools used for data analysis and interpretation
were frequency counts, percentage method, weighted mean, and Pearson r.
Summary of Findings
The findings of the study were summarized in according to Chapter 1- Statement
of the Problem:
1. Description of the Financial Statements in Small and Medium Enterprise
Owners of Pasig City
1.1 Statement of Financial Position
The data indicates that the respondents/small and medium enterprise
owners believed that the Statement of Financial Position is highly impactful with
an overall mean of 3.49. They were aware that the statement of financial position
contained the snapshot of their enterprise’s health.
1.2 Statement of Comprehensive Income
The data shows that the respondents/small and medium enterprise owners
believed that the Statement of Comprehensive Income is highly impactful with an
overall mean of 3.49. They were aware that the statement of comprehensive
income contained profits and losses of the enterprise.
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1.3 Statement of Cash Flow
The data specifies that the respondents/small and medium enterprise
owners believed that the Statement of Cash Flow is highly impactful with an overall
mean of 3.44. They were aware that the statement of cash flow contained the
inflows and outflows of the enterprise.
1.4 Statement of Retained Earnings
owners believed that the Statement of Retained Earnings is highly impactful with
an overall mean of 3.44. They were aware that the statement of retained earnings
contained information about reserves, shares, and cumulative income.
2. Extent of Impact in the Decision-making of Small and Medium Enterprise
Owners in Pasig City
2.1 Investing Decisions
owners believed that investing decisions are highly impactful with an overall mean
of 3.49.
2.2 Financing Decisions
The data shows that the respondents/small and medium enterprise owners
believed that financing decisions are highly impactful with an overall mean of 3.43.
82
2.3 Operation Decisions
owners believed that operation decisions are highly impactful with an overall mean
of 3.49.
3. Based on the data, the researchers found out that the factors of financial
statements significantly impact the decision-making of the small and medium
enterprise owners. Based on the results, Financial Statements with all its factors:
Statement of Financial Position, Statement of Comprehensive Income, Statement
of Cash Flow, and Statement of Retained Earnings as measured showed that it
significantly impacts the Decision-Making with all its factors: Investing Decisions,
Financing Decisions, and Operations Decisions.
4. The researchers concluded that there are several implications from the findings of
the study: the use of financial statements increases the decision-making process
of the small and medium enterprise owners, the small and medium enterprise
owners can use the information from the financial statements as a tool to improve
their decisions on certain aspects of their business not just in day-to-day
operations but the company as a whole, in turn paves a way to attain the
company’s goals and objectives. Therefore, the hypothesis is rejected based on
the result of the data that is provided in this study.
83
Conclusions
Based on the result of the study, the following conclusions were drawn:
1. Description of the Financial Statements in Small and Medium
Enterprise Owners of Pasig City
The small and medium enterprise owners in Pasig City strongly agree that
financial statements such as: statement of financial position, statement of
comprehensive income, statement of cash flow and retained earnings had
significant financial information that reflects the whole company.
2. Extent of Impact in the Decision-making of Small and Medium
Enterprise Owners in Pasig City
The small and medium enterprise owners in Pasig City strongly agree that
the decision-making of small and medium enterprise owners had a very high
impact in their decisions, specifically investing decisions, financing
decisions, and operation decisions.
3. Financial Statements Significantly Impact the Decision Making of
Small and Medium Owners in Pasig City
The factors of financial statements that greatly impacted the decision
making of small and medium enterprise owners are statement of financial
position, statement of comprehensive income, statement of cash flow and
retained earnings.
84
4. There is a significant impact of financial statements to the decision making
of the small and medium enterprise owners in Pasig City.
5. The researchers concluded that there are several implications from the
findings of the study. The use of financial statements helps business owners
forecast their income, profitability, financial health and security of their
business. Moreover, the small and medium enterprise owners can adopt a
decision-making process based on the financial information of financial
statements by gathering relevant information, identifying alternatives and
weighing possible outcomes.
Recommendations
In the light of the findings and conclusions of this study, the following
recommendations are hereby presented.
1. The recommendations were made for small and medium enterprise owners.
They may use financial statements as a tool to have a partial view of their
financial status during the past and current operations of their business to
improve and develop future business operations. Consequently, they
should consider the appropriate financial information from financial
statements for their decision-making measures; as per investing, financing
and operation decisions to ensure financial health and security.
85
2. The recommendations were made for investors.
Current and potential investors of a business may use financial statements
as a basis to identify businesses’ return on investment, or forecast the
amount they will get in return from investing in a business. Consequently,
they can gain essential information from the use of financial statements to
decide how much money they are going to invest in a business. Having
adequate knowledge on the financial information given in the financial
statements may help them make sound investing decisions.
3. The recommendations were made for creditors.
Current and potential creditors may use financial statements as a basis for
identifying liquidity and solvency or the ability to pay credits by a business.
It gives them an outlook on how businesses are able to utilize debts and
allocation of these debts to repay loans. Moreover, creditors can determine
secondary sources of loan repayment or collateral in such cases that the
business is unable to pay its loan.
4. The recommendations were made for employees.
Employees may use financial statements to provide them a detailed
explanation of how business operations work. It will increase their level of
employee involvement and understanding of the business they work in. By
involving employees in the financial information of financial statements of
86
the business, it can motivate and engage them further by showing how they
impacted the businesses’ overall profitability.
5. The recommendations were made for future researchers.
The future researchers can continue this study in considering other factors
impacting the decision making of small and medium enterprise owners.
Hence, they can use this as a basis for developing and improving the
utilization of financial statements to aid small and medium enterprise
owners the best alternative for their decision-making process.
87
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APPENDIX A
Letter Request to Validator 1
June 9, 2022
Mr. Allan Espenilla

Resident Data Analyst
Pasig Catholic College
Dear Mr. Espenilla:
Praise Be Jesus Christ, Now and Forever!
Me, Janna Mari C. Frias, and my partner Patricia G. Lapuz are currently 3 rd year college
students under Bachelor of Science in Accountancy of Pasig Catholic College. We are
undertaking a research study entitled “Impact of Financial Statements on the Decision-
Making of Small and Medium Enterprise Owners in Pasig City”.
In this regard, the researchers are in need of assistance with the statistical computation
of the results from the data gathered from the questionnaire that is essential for the study.
We humbly request your expertise and knowledge on statistical methods that will be used
to interpret the results of the data.
We are hoping for your positive response on this matter. Your kind approval of this request
is greatly appreciated.
This will be a great help to us Mr. Allan Espenilla.

That in all things, God may be glorified!
Respectfully yours,
95
APPENDIX B
June 9, 2022
Mr. Francis Sarmiento

Professor/Accountant
Dear Mr. Sarmiento:
In this regard, the researchers are in need of assistance with the validation of the
questionnaire that is necessary for the study. We modestly request your expertise and
knowledge in the validation of my instrument.
This will be a great help to us Mr. Francis Sarmiento.

Respectfully yours,
96
APPENDIX C
June 9, 2022
Ms. Leonora D. Opeña

Auditor
Playboy Philippines Magazine
Dear Ms. Opeña:
In this regard, the researchers are in need of assistance with the validation of the
questionnaire that is necessary for the study. We modestly request your expertise and
knowledge in the validation of my instrument.
This will be a great help to us Ms.

Respectfully yours,
97
APPENDIX D
June 9, 2022
Ms. Maria C. Tanangco

Professor
Pasig Catholic
Dear Ms. Tanangco:
Me, Janna Mari C. Frias, and my partner Patricia G. Lapuz are currently 3 rd year college students
under Bachelor of Science in Accountancy of Pasig Catholic College. We are undertaking a
research study entitled “Impact of Financial Statements on the Decision-Making of Small and
Medium Enterprise Owners in Pasig City”.
In this regard, the researchers are in need of assistance with the English grammar and fluency of
our questionnaire and thesis paper that is necessary for the study. We modestly request your
expertise and knowledge for our research.
We are hoping for your positive response on this matter. Your kind approval of this request is greatly
appreciated.
This will be a great help to us Ms Maria Tanangco.

Respectfully yours,
98
APPENDIX E
Letter to the Dean’s Office
May 19, 2022
Dr. Leonora D. Fernandez

College Dean
Dear Ms. :
We are students of Pasig Catholic College, taking up Bachelor of Science in Accountancy,

and we are working on our thesis. The survey is about the “Impact of Financial
Statements on the Decision-Making of Small and Medium Enterprise Owners in
Pasig City”. In line with this, we are requesting permission to conduct a survey with some
of the small and medium enterprise owners in Pasig City specifically in barangay Bagong
Ilog, and barangay Kapasigan that may help us to complete our thesis.
This thesis/research is one of our requirements to pass our major subject we will use for
educational purposes only, and we promise that this will only be kept confidentially.
We are hoping for the best and waiting for your approval.
Thank you and God bless.

That in all things, God may be glorified.
Truly yours,
99
APPENDIX F
Letter to the Barangay Chairman of Kapasigan
May 20, 2022
Kap. Bien Raymundo Legaspi

Chairman of Barangay Kapasigan
Barangay Kapasigan
Dear Brgy. Captain Legaspi:
Praise be Jesus Christ, Now and Forever!

of the small and medium enterprise owners in Pasig City specifically in your barangay
Kapasigan.
Truly yours,
100
APPENDIX G
Letter to the Barangay Chairman of Bagong Ilog
May 20, 2022
Kap. Nilo Abrenio

Chairman of Barangay Bagong Ilog
Barangay Kapasigan
Dear Brgy. Captain Abrenio:
Praise be Jesus Christ, Now and Forever!

of the small and medium enterprise owners in Pasig City specifically in your barangay
Bagong Ilog.
Truly yours,
101
APPENDIX H
Locally-Constructed Questionnaire
Profile of the Respondents:
Name of Business (optional): ________________________
Line of Business: ________________________
Location of Business (optional): ________________________
Gender: [ ] Female [ ] Male
Age: [ ] Below 21 [ ] 33-36 [ ] 47-51 [ ] Above 61
[ ] 22-26 [ ] 37-41 [ ] 52-56
[ ] 27-31 [ ] 42-46 [ ] 57-61
The researchers are 3rd year accounting students currently conducting a research titled
“Impact of Financial Statement on the Decision Making of Small and Medium Enterprise Owners
in Pasig City” as a requirement in the degree of Bachelor of Science in Accountancy (BSA). May
we request you to participate in this research endeavor by the researchers. Rest assured that all
the information which you would provide will be treated with strict confidentiality. Thank you very
much for your support and consideration.
A. Investing Decisions: Strongly Agree Disagree Strongly

Agree Disagree
A.1. STATEMENT OF FINANCIAL POSITION
1. It helps the business owner assess whether to

dispose of the current plant, property or equipment.
2.It helps the business owner assess whether to

invest in long-term investments like
stocks, bonds, and mutual funds.
3.It helps the business owner to evaluate

whether there is too much or too little capital
tied up to its permanent investments.
A.2. STATEMENT OF COMPREHENSIVE INCOME
4. It helps the business owner assess if it would

incur a gain or loss from lending principal loans
to other parties.
102
5. It helps the business owner assess the gain or
loss derived from the sale of plant, property, and
equipment.
A.3 STATEMENT OF CASH FLOW
6. It helps the business owner forecast receipts

from long-term investments.
7. It helps the business owner decide if they

8. It helps the business owner to decide if they

should sell their plant, property or equipment.
9. It helps the business evaluate the effects of

A.4 STATEMENT OF RETAINED EARNINGS
10. It makes the business owner identify if they

should focus on product development or
develop a new one.
B. Financing Decisions:
B.1 STATEMENT OF FINANCIAL POSITION
11. It helps the business owner identify the need

for additional capitalization.
12. It helps the business owner assess whether

to proceed for a bank loan to settle financial
expenses.
13. It helps the business owner identify if they

are able to pay long-term obligations.
14. It helps the business owner identify whether

they can further acquire additional loans from
other parties.
B.2 STATEMENT OF COMPREHENSIVE INCOME
15. It helps the business owner assess interests

derived from obligations.
103
16. It helps the business owner assess income
generation in relation to asset efficiency.
17. It helps the business owner assess income

generation in relation to equity efficiency.
B.3. STATEMENT OF CASH FLOW
18. It helps the business owner assess capital

acquisitions like asset or stock acquisition and
merger.
19. It helps the business owner assess long-term

obligations derived from capital acquisitions.
20. It helps the business owner assess the

dividends declared and paid to shareholders.
21. It helps the business owner forecast receipts

from long-term investments.
B.4 STATEMENT OF RETAINED EARNINGS
22. It helps the business owner forecast the

value of gain or loss from the sale of new shares
of stocks.

they should issue new shares of stocks.

they should reacquire outstanding shares of
stocks.
25. It guides the business owner whether they

can have possible mergers, acquisition, or
partnership.
26. It helps the business owner assess current

reserves on future losses, guarantees, and
loans.
27. It helps business owner decide if they can

afford to declare and pay dividends this year.
104
C. Operating Decisions
C.1 STATEMENT OF FINANCIAL POSITION

the current assets are more than its current
liabilities.
29. It helps business owner assess whether they

bills, government bonds, and money market accounts.
30. It helps the business owner identify the

obligations.
31. It helps the business owner assess if the

most liquid assets can pay its short-term debt
obligations.
32. It helps the business owner identify whether

to increase the volume of inventory to cater the
C.2 STATEMENT OF COMPREHENSIVE INCOME
33. It helps the business owner identify the

34. It helps the business owner forecast income

generation acquired from interest.
35. It helps business owner to cut costs if

needed be with expenses with the use of
financial ratios.
36. It helps the business owner evaluate the

effects of procurements like supplies and other
assets.
37. It helps the business owner to identify if they

are sticking to their values in business in terms
of employee salaries, benefits and incentives.
105
C.3 STATEMENT OF CASH FLOWS
38. It helps the business owner if the business

has the ability to operate in both short term and
long term.
39. It helps the business owner pinpoint when

and where their money is coming from.
C.4 STATEMENT OF RETAINED EARNINGS

the current operations are retaining income or
not.
106
Frias, Janna Mari C.
153 Dr. Sixto Antonio Ave., Rosario Pasig City
0977282940
friasjanna19@gmail.com
Objectives
To work in a progressive organization which can expand all my knowledge, skills
and would provide me exciting opportunities to exercise my abilities and talents to serve
and produce good results.
Skills, Qualities and Values
▪ Computer Literate
▪ Good in Oral and Written Communication in Filipino and English
▪ Flexible and works well under pressure
▪ Has excellent leadership skills and hard worker
▪ Moderate mastery of Google Programs, and Microsoft Programs
Educational Background
Elementary
R. Jabson St. Malinao Pasig City
Year Attended 2008-2013
Junior High School

Senior High School

107
Lapuz, Patricia G.
16 Aurellana Rd, Bagong Ilog, Pasig City
09064153246
patricialapuz99@gmail.com
Objectives
To obtain a challenging position in a harmonious working environment where my

skills, knowledge and abilities will be further developed and utilized for the innovation of
the company and society.
Skills, Qualities and Values
• Computer Literate
• Good in Oral and Written Communication in Filipino and English
• Flexible and works well under pressure
• Attentive to details
• Willing to communicate with people
Educational Background
Elementary
Sta. Rosa Catholic School
M. San Buenaventura, Pasig City,
Junior High School

Sta. Rosa Catholic School
M. San Buenaventura, Pasig City,
Senior High School

La Consolacion College Pasig
641 Mercedes Avenue, San Miguel, Pasig City
108

Impact of Financial Statements To The Decision-Making of Small and Medium Enterprises

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CHAPTER 1

The Problem and its Background

Financial Statements is a reflection of the firm’s business activities (Pristine,

statements serve as the means of communication between business and all

interested parties. The types of financial statements include a statement of

financial position formerly known as balance sheet, statement of comprehensive

different purposes in attaining a firm’s business interests such as decision-making,

any company (Dantas, 2013).

According to Zager (2006), one of the key components in the process of

decision making is to have quality information, especially when it comes to

accounting information systems and financial statements. One major aspect of

decision-making is taking the right investment decision (Pristine, 2015). As

a firm. In addition, financial statements are viewed as a decision-making tool for

operational decisions in which it shows business trends, rates at which it collects

statements on the decision making of small and medium enterprise owners in

Pasig City specifically in Barangay Bagong Ilog and Kapasigan.

The possible contribution of this study is to identify the impact of financial

affect their overall business operations specifically in investments, financing, and

operational decisions. Other possible contributions include giving rise to insight of

financial information to existing and potential investors, creditors, customers,

employees, and management regarding overall forecasting business decisions.

decision-making for small and medium enterprises.

proper decisions towards financial security, investment decision making and

developing business operations.

on a firm regarding its financial solvency and possible risks.

company and raise awareness.

researchers as a reference who are conducting a similar study.

Figure 1. Theoretical Framework

requires mathematical strategies to come up with a suitable result alongside risks

involved (Yadav, 2018). Decision analysis requires a decision maker’s utility

function present to choose from a variety of possible decisions while uncertainties

information to make certain optimal decisions.

In understanding and correctly analyzing the information from the financial

statements as a guide to decide certain business decision making and ultimately

assist the management in making necessary business decisions in connection with

the continuity of their business. Moreover, the information given by these

statements includes the performance and changes in their business operations

which are relevant when making overall organizational decision making.

in determining the financial statements in small and medium enterprises in Pasig

City and their impact on decision making of the owners.

The financial statements and decision-making illustrate the independent

and dependent variables of the study. The independent variable financial

statements which includes statement of financial position, statement of

comprehensive income, statements of cash flow, statement of retained earnings

The variables connecting the financial statements and decision-making

indicate the hypothesized relationships between the financial statements and

decision making of small and medium enterprise owners in Pasig City.

Pasig City be described in terms of:

1.1 Statement of Financial Position;

1.2 Statement of Comprehensive Income;

1.3 Statement of Cash Flow; and

1.4 Statement of Retained Earnings?

2. What is the extent of impact in the decision-making of small and medium

enterprise owners in Pasig City in terms of:

2.2 Financing; and

3. Do financial statements significantly impact the decision making of small and

medium enterprise owners in Pasig City?

4. What implications may be derived from the results of the study?

Financial statement does not significantly impact the decision making of

small and medium enterprise owners in Pasig City.

Scope, Delimitations, and Limitations of the Study

The study intended to determine the impact of financial statements on the

in barangay Bagong Ilog and Kapasigan engaged in merchandising and service