THE IMPACT OF BUDGETING PRACTICES ON THE PROFITABILITY OF

SMALL AND MEDIUM - SIZED ENTERPRISES 
IN TACURONG CITY
Title Page

LORRAINNE JANE G. MUÑOZ

SYDNEY LEE OLYMPIA V. TORRES
CHRISTIAN JAMES F. TUDLAS

SUBMITTED TO THE FACULTY OF THE COLLEGE OF BUSINESS

ADMINISTRATION AND HOSPITALITY MANAGEMENT,
SULTAN KUDARAT STATE UNIVERSITY
IN PARTIAL FULFILLMENT OF THE
REQURIEMENTS FOR THE
DEGREE OF

BACHELOR OF SCIENCE IN ACCOUNTANCY 

APRIL 2023
 Chapter I
INTRODUCTION

Background of the Stud

In recent times, organizations in both developed and developing countries

face high competition in the business sector. However, this is more severe in

developing countries than developed countries. With respect to financial

management systems, including budgeting, cost allocation techniques, financial

reporting systems and others have come under countless investigations. This

has attracted the attention of scholars on the subject of financial performance in

the various areas of business and strategic management (Pimpong & Laryea,

2016).  One of the most drastically affected sides of organizations is the budget

and budgetary control (Koech, 2015). 

It is indisputable that any organization that wants to survive in the recent

competition within the business sector needs sharp tools and proven

management strategies to forecast and determine the significant changes which

are probably going to influence the business while they choose the future

direction and dimension of resources needed to ascertain the stated goals of the

organization. Most organizations adopt new management tools with the desire to

enhance their management and budget process. Financial resources are one of

the key elements in achieving organizational objectives and goals. However, in

order to achieve the objectives budget has to be prepared effectively and

adhered to. A budget may be described as a quantitative expression of a plan

and the process of converting plans into budget is known as budgeting. Budget is
one of the most widely used tools for planning and controlling business

organization.

The budgeting process may be quite formal in a large institution with

committees set up to perform the tasks. On the other hand in a very small firm

the owner may write down the budget on a piece of paper or just budget in his

head about the items he can remember easily (Assey, 2014).

Some enterprises have performed poorly in Tacurong City due to

challenges such as, competition from imported goods, low purchasing power and

lack of market, depreciation of the country’s currency, poor power supply and

high cost of raw materials, high utility prices and cost of credit and access to

credit and above all lack of effective and efficient budgets, and budgetary control

systems to adequately and judiciously allocate resources to meet organizational

goals, and maximize performance. Most of these enterprises ranging from small -

scale businesses to medium - scale businesses, fail to recognize the influence of

budgets and budgetary control over profitability outcomes (Matsoso, Nyathi, &

Nakpodia, 2021). 

These enterprises go ahead without paying more attention to improving

their performances through their budgets. Since the budgets indicate the plan of

action the firm is taking, firm managers ought to maintain proper, updated and

reviewed budgets which make their firms remain small, stagnant and even close

down (Warue & Wanjira, 2013). What motivates this study is to determine

whether the high rate of failure can be attributed to poor budgeting processes. 
Statement of the Problem
This study generally sought to determine the impact of the budgeting

practices on the profitability of small and medium - sized enterprises in Tacurong

City, Sultan Kudarat. 

Specifically, this research aimed to:

1. Determine the business profile of the respondents in terms of:

1.1. Type of the business;

1.2. Size of the business; 

1.3. Number of years in the business; and

2. Determine the extent of budgeting practices of Small and Medium - sized

Enterprises in terms of:

2.1. Budget Planning; 

2.2. Budget Control; 

2.3. Budget Coordination; 

2.4. Budget Communication; and

2.5. Budgetary Evaluation Process?

3. Determine the level of profitability of the business enterprise in terms of:

3.1. Growth in Sales/Revenues

3.2. Profit Margin

3.3. Return on Investment (ROI)

3.4. Return on Assets (ROA)

3.5. Return on Equity (ROE)

 3.6. Economic Value Added (EVA)

4. Determine the significant impact of budgeting practices on the profitability of

small and medium sized enterprises in Tacurong City.

Conceptual Framework 

The conceptual framework is a group of concepts that are systematically

organized to provide a focus, a tool and rationale for interpretation and

integration of information and is usually achieved in pictorial illustrations. The

conceptual framework of the study is made up of the independent and dependent

variables (Njeru, 2015). The paradigm presents the conceptual framework of the

study. This includes the budgeting practices that constitute the independent

variables. These are; the planning process, coordinating process, controlling

process, communication process and evaluation process. budgeting practices

While the profitability of small and medium enterprises in Tacurong City

constitutes the study’s dependent variable with the indicators; growth in

sales/revenues, profit margin, return on investment (ROI), return on assets

(ROA), return on equity (ROE), and economic value added (EVA). Theoretically,

the whole budgeting practice is anticipated to have a positive impact on the

profitability of the small and medium enterprises in Tacurong City. 

The arrow from the first box to the second box signifies the direct influence

of budgeting practices to the profitability of small and medium enterprises in

Tacurong City. 
 INDEPENDENT VARIABLE DEPENDENT VARIABLE

Figure 1. The Conceptual Framework of the Study

Hypothesis

The following null hypothesis will be tested based on the 0.05 level of

significance:

1. The planning process has no significant influence on the profitability of

small and medium enterprises; 

2. The controlling process has no significant influence on the profitability of

small and medium enterprises; 

3. The coordinating process has no significant influence on the profitability of

small and medium enterprises; 

4. The communication process has no significant influence on the profitability

of small and medium enterprises; 

 5. The evaluation process has no significant influence on the profitability of

small and medium enterprises.

Significance of the Study 

The significance of the current study, first of all, contributes to expansion

of the existing findings in the budgeting literature. This study draws on

researchers’ observation from the obviously ignored area of financial planning

and control in small and medium-sized enterprises. It tries to fill the gap in

previous literature about how budgeting affects performance in small and

medium enterprises’ business context. The current study contributes to SME

literature, particularly in terms of the performance measurement in SMEs. It gives

a fresh insight into the possible correlation between budgeting and performance

in SMEs. 

To the Society, the study responds to the fast growth of SMEs. As the

other cities become more industrialized, the implementation of the

management accounting systems and techniques in the other cities remains an

important issue. Small and medium sized enterprises are quite different from

large firms. Therefore, the study is expected to be addressing this issue, to

investigate how budgeting should be suitably applied and covered, which will

positively improve their performance. 

To the SMEs Owners/Managers, the result can be used for better

budgeting practice to improve performance. The findings of this research will

provide more useful understanding about budgeting and participation, i.e. how to

apply the budgeting system; how to adjust budget practice within organizations;
whether it is useful to apply participation in a small organization. They may

change their attitude and/or behavior concerning budgeting activity, and finally

enhance the beneficial outcome of management accounting system at the firm

level 

To the Future Researchers, the research study can help future

researchers to have another reference or basis for related studies. They may

also use this to investigate more on the same problem presented in this study.

Scope and Limitation of the Study 

The scope of this study primarily focused on knowing the extent of

profitability, extent of budgeting practices, and the degree of relationship

between the two variables of the research study. The respondents of the study

are the small and medium enterprises within Tacurong City, Sultan Kudarat

where the research will be conducted. This study will be conducted in S.Y. 2022

– 2023.
Definition of Terms

The following terms are operationalized and conceptualized in order to

fully comprehend the research study:

Budgeting Practices a quantitative representation of a

strategy for a specific period of time.

Assets, liabilities, costs and expenses,

resource quantities, expected sales

volumes and revenues, and cash flows

are all possible inclusions.

Profitability the ability of a company or business to

generate revenue over and above its

expenses.

Small and Medium Enterprises defined as any enterprise with 10 to 199

employees and/or assets valued from

P3 million to P100 million.

 Chapter II
REVIEW OF RELATED LITERATURE

This chapter presents related literature that is relevant to the topic and

gives significant insights from various authors about budgeting processes and

financial performance. The discussion on the independent variable, which is

budgeting processes, and its indicators is based on the study of Abongo (2017),

the budget planning, budget control, budget coordination, budget communication

and budgetary evaluation process. However, the dependent variable, which is

the profitability, is adapted from Fortuna (2021) with indicators of growth in

sales/revenue, profit margin, Return on Investment (ROI), Return on Asset

(ROA), Return on Equity (ROE) and Economic Value Added (EVA).

Business Profile

A corporate business profile is a brief overview of a firm that allows

various groups of people to gain a broad understanding of its products or

services, target market, distinctive strengths, track record, and whether it is a

good organization to do business with. It should be well-written in order to

express the dominant principles and corporate culture that give the firm its

unique personality. Good company profiles also demonstrate how effective a firm

is at satisfying the demands of its clients or consumers (Garcia, 2015).

A business profile is described as a professional introduction designed to

capture the reader's attention and tell him about the firm in a concise manner. It

is intended to establish a strong initial impression on potential investors or

clients. A business profile is essentially a synopsis of all the significant features

of a company. It takes the form of a statement that describes significant business

information. A business profile is a type of marketing collateral that performs

several functions. (Bhasin, 2020)

Type of Business

Business entities are an essential component of corporate operations and

economic output. A competent business practitioner must be familiar with the

features of the various types of business entities, since these qualities may have

a significant impact on the nature of business partnerships (Gordon, 2023).

According to the law, the single proprietorship's owner is solely liable for all acts

and omissions. The word simply signifies that there is just one firm owner who

oversees the whole organization (Panda, 2019).

The sole proprietor receives all of the company's profits, as well as its

expenses and costs. A partnership is a type of business in which two or more

persons share ownership as well as responsibility for managing the firm and its

profits or losses.  According to the findings of Yue, Ye, and Chen's study (2022),

partnerships have a positive impact on sustainable performance; information

sharing plays a role in mediating the relationships between trust, cooperation,

and sustainable performance; and government support can positively impact the

effect of partnerships on sustainable performance.

A corporation is a legal body that exists independently of its owners.

Corporations have many of the same legal rights and obligations as people.

According to Kirsch (2014), the corporation is one of the most powerful

organizations of our day. Corporations organize much of the world's labor and
capital, define the contemporary world's tangible form, and are a driving force

behind globalization.

Size of Business

Growth is critical to a company's long-term sustainability. It aids in the

acquisition of assets, the attraction of fresh personnel, and the funding of

investments. It also influences corporate performance and profitability. A properly

sized firm is a machine for producing value for the owner, its stakeholders, and

the community. The optimal size for most enterprises is substantially larger than

the current status. One of the most essential things owners and their

communities of support can do is to encourage development (Rettich, 2018).

Novak (2019) underlined the significance of business in her study, noting that

business size categories exist for a reason.

When the size of a company is taken into account, it offers a fuller picture

of its health and economic influence. When the size of the business is taken into

account, it offers a more balanced view of how the firms are functioning. Big firms

have a lot of money and resources to expand. As a result, they benefit from

greater economies of scale, which allows businesses to be more efficient. A

strong market position and increased bargaining power with consumers and

suppliers are also supported by large resources. (Nasrudin, 2022). 

Number of Years in the Business

The age and size group analyses in Mansikkamaki's (2023) study

demonstrate that the smallest young enterprises have the highest possibility of

success despite the growth plan since they face the fewest risks from non-
profitable expansion. With age and scale, a properly planned growth strategy that

prevents non-profitable expansion becomes increasingly crucial. Radipere and

Dhliwayo (2014) discovered a statistically significant association between

business age and company performance.

Firm performance rises with age and learning experience, according to the

life-cycle approach. It goes on to claim that the firm's performance increases until

a certain age, when it starts to decline. Firm age is a key predictor of financial

success, both directly and indirectly via foreign ownership. The positive

connection implies that foreign investors favor enterprises that have been in the

market or in operation for a longer period of time than start-ups or businesses in

their early stages. One viewpoint is that younger businesses are riskier, less

experienced, and have less tangible and intangible resources than older

organizations (Mallinguh, Wasike & Zoltan, 2020).

Small and Medium - Sized Enterprises (SME)

SMEs are regarded as the economic backbone. The SME sector is well

known across the world for its substantial contribution to socioeconomic growth.

This sector has made important contributions to increased employment, output,

export promotion, and entrepreneurship (Gupta, Guha & Krishnaswami, 2013).

Small and medium-sized enterprises (SMEs) are critical to the growth of the

national economy. It is also regarded as the primary source of employment,

poverty reduction, lifestyle enhancement, and empowerment of low-income

communities (Lubis & Muchtar, 2019).

 The PSA classifies an enterprise as small if it employs 10 to 99 people,

and medium if it employs 100 to 199 people. The Magna Carta for Micro, Small,

and Medium Enterprises (MSMEs) classifies an enterprise as small if its asset

size is Php 3,000,001-15,000,000, and medium if its asset size is Php

15,000,0001-100,000,000.

Budgeting Practices

Budgeting emphasizes foreseeing future financial requirements and

quantifying it in terms of money (Qi, 2010).This suggests that budgets set

performance goals for the organization in terms of expenditures and revenues for

each of its activities. The budgeting process lets an organization plan and

prepare its budgets for a set period.  It comprises reviewing prior budgets,

calculating and projecting future revenue, and allocating money to cover a

company's various expenses (Bailey, 2021). A solid budgeting process involves

everyone who is accountable for sticking to the budget and carrying out the firm's

goals. Incorporating strategic planning goals and preparing for income before

spending are essential components of a sound budgeting process (Abongo, et

al., 2017).

Although the timing and steps of the budgeting process may differ from

organization to organization, common steps according to Schmidt (2016) include

determining the difference between the budgeted and actual amounts, identifying

and prioritizing business objectives and needs for the upcoming period, and

projecting and evaluating elements like current business trends. Putting in place

ways and procedures for plan implementation and monitoring; making sure the
funding proposal is in line with the company's strategic objectives; and, finally,

wrapping up and expressing the requests for funds to the board responsible for

assessing and approving the budget.

Budget Planning

A budget is a group of related plans that quantify the anticipated future

operations for a production. This suggests that budgets set performance goals

for the organization in terms of expenditures and revenues for each of its

activities. In this study, budgeting processes are based on Abongo (2017) with

the following indicators: budget planning, budget control, budget coordination,

budget communication and budgetary evaluation process.

Budget planning includes budget execution, budget accounting, budget

reporting, and control over budget execution, among other closely linked

elements (Demianyshyn and Pohrishchuk, 2017). According to the authors, a

well-organized budget planning process involves mutually beneficial relationships

and constructive cooperation of all participants at the state and local levels, from

budgetary institutions to line ministries and departments, and plays a significant

role in identifying priority areas of budget funds based on available budget

resources. Sharov & Reznikova (2019) state that it is very vital to consider

potential hazards, threats, and dangers of various aspects of the country's

socioeconomic development at the planning stage. According to Chugunov,

Makohon, and Krykun (2019), the income and expenditure budget planning

should be created in a way that ensures the accomplishment of the strategic

goals and objectives of the country's overall and its administrative territorial
entities in particular's sustainable socioeconomic development while maintaining

budgetary stability and balance.

Budget Control

Budgetary control approaches identify the amount, quantity, and timing of

resources required as well as the financial implications of corporate strategies

(Kerosi, 2018). Estimates of future sales revenues and expenses are provided by

budget and budgetary procedures, along with the setting of short- to long-term

objectives, to offer short- and long-term company goals. Sharma (2012) adds

that the task controls and management benchmarks are calculated by comparing

the actual results to the budgetary plans in order to make any necessary

corrections. Through the translation of corporate objectives and the provision of

benchmarks against which success can be measured, budgets have an impact

on how people behave and make decisions. To carry out the business,

coordination entails gathering and planning the necessary workers, tools, and

supplies.

A budget helps with coordination between various activity units so that

everyone in the firm is aware of their roles and how they all fit together. It reveals

the organizational structure's flaws. The budget outlines the expectations for the

workforce. It makes it possible for ideas, plans, and directions to be agreed upon

by Shim and Siegel (2022). The coordination process entails combining the

actions, resources, and several company divisions into a single plan. The

process of budgetary control entails creating a spending plan, which should be

periodically compared with actual spending to see if adjustments are necessary

or not (Hancock, 2015).

Budget Communication

Communication is critical in the budgeting process, regardless of the

budgeting technique. If there is insufficient communication, procedures may

deteriorate, resulting in inaccurate financial information (Lazenby, 2013). Poor

communication might cause serious problems. According to Bartels (2013), a

lack of communication skills wastes valuable time, resources, and energy while

also harming trust, relationships, and desire to work. The organization's financial

decisions should be communicated to all relevant workers.

Budgets serve a vital role in communicating objectives, goals, and duties

within the organization. If done correctly, this can have significant benefits in

terms of promoting cooperation at all levels. To ensure that the budget

implementation process is successful, management and employees should

collaborate to ensure that the interests of all stakeholders are fully represented

when making key decisions involving budgetary allocations in key projects

(Mutinta, 2018). The research of Matsoso, Nyathi, and Nakpodia (2021)

strengthens the communication power of budgeting and budgetary controls since

SMEs and economic agents are not only aware of company aims but are also

incentivized to assist their achievement.

Budget Coordination
 In the study of Gooneratne & Hoque, 2019 it was discovered that budget

management and control had an impact on the effectiveness of the financial firms

that looked at the MAPs used in Nepalese private banking firms using an

illustration of 367 personnel. Managements' participation in the creation of

corporate industry budgets, the funding allocation for various variables in the

spending plan, as well as the articulation of each manager's role during the

budgeting process, were crucial tasks that contributed to the achievement of the

organizational objective. The budget proposal, which entails the creation of a

more formal and precise budget procedure, appears to be more closely related to

long-term efficiency in large corporations than in smaller businesses (Merchant,

2020).

The institutional budgetary control in SMEs has two components: a formal

budget method planning and a formal financial control method (Mulani, 2015). On

the performance of the firm, the level of budgeting planning and financial control

methods may be favorable. The effectiveness of the fiscal plan targets reduces

unnecessary obstacles and, as a result, confusion, which improves the financial

company’s success (Schubert & Kirsten, 2021).

Budgetary Evaluation Process

Budgetary evaluation, according to Yee, Khin & Ismail (2016), is the extent

to which budget differences can be linked back to the heads of specific

departments in assessing their performance. Employee behaviors, attitudes, and

performance have been found to be influenced by how budgets are used in

performance appraisal. According to the Fortuna (2021) study, more formal

budgeting plans promote higher growth of sales revenues in small and medium

enterprises, clear and difficult budget goals improve organizational budgetary

performance, more sophisticated budgeting procedures result in lower profit

growth of small and medium enterprises, more formal budget mechanism leads

to higher profit growth in organizations, and greater budgetary participation leads

to better management.

According to Silva and Jayamaha (2012), the budgeting process involves

participation, planning, control, and evaluation, which encourages managers to

plan, consider the stakeholders involved, provide information for improved

decision making, increase and enhance communication, coordination among

departments, and evaluation. Budget evaluation is seen as the most important

component of budget operations and has the biggest impact on financial

performance, according to Laryea (2016) research on the influence of budgeting

on the financial performance of non-financial organizations in Ghana.

Profitability 

Profitability is a crucial issue to consider since a firm must be profitable in

order to function properly. Companies will find it difficult to attract outside

financing if they do not make a profit (Iskandar,2021). According to Choudhary

(2018), the correlation between production and financial performance in

generating an annual rise in the profitability value over the productive life of the

industrial firm is critical in deciding current and future productive strategies.

Many businesses attempt to boost profitability and improve financial

performance without sacrificing productive efficiency, whilst others want to

improve operational efficiency in order to improve financial performance (Fan,

2017). Alsughayir (2013) studied the link between quality management,

profitability, and productivity in the Saudi industrial sector. The study discovered

that the productivity rate acts as a bridge between profitability and quality

management. Harb (2019) discovered that profitability and financial performance

had a statistically significant influence on boosting productive efficiency in

Jordanian industrial firms. Based on this, the researcher made many critical

recommendations to Jordanian industrial firms, including increased interest in

profitability and financial performance in order to boost productive efficiency.

According to Hussain (2018) literature analysis, the primary challenges

influencing SMEs' profitability were unfavorable selection and a lack of basic

financial skills. 

Growth in Sales/Revenues

Sales growth is defined as the annual change in sales. According to

Hariyanto & Juniarti (2014), sales growth is defined as a rise in the quantity of

sales from year to year or from time to time.  Increased sales will be reflected if

sales growth is substantial. Sales growth is used to assess the extent to which

the sales department has succeeded in meeting its sales objectives, and is

frequently used as an indicator of the company's survival and financial progress.

If the sales increase, the profit will rise, and the profit divided per share may rise

as well (Sivathaasan & Rathika, 2013).

Companies that experience sales growth might enhance earnings,

according to Ismaida and Saputra (2016). In addition to the capacity to expand

revenues, the corporation requires more capital. Ghozali, Handriana, and

Hersugondo (2018) discovered that the growth rate of sales mediates the impact

of investment and company performance. The study empirically proves that the

influence of investment and firm performance will be greater if it uses Growth rate

of sale, which means that the higher the desire of investment that aims to

increase sales, such as investment in real assets to update the production

process to become more efficient, with the use of technology in production, then

the company's performance will improve in the eyes of investors. In contrast, Nur

and Mahiri (2022) research, shows that sales increase has no effect on

profitability of the firm. Profit growth cannot impact profitability since the level of

profitability is primarily dominated by corporate debt. 

 Profit Margin

Net Profit Margin (NPM) is a measure that displays a company's net sales

income. Net Profit Margin is a profit statistic that compares earnings after interest

and taxes to sales. The higher the Net Profit Margin figure, the greater the firm's

capacity to earn net income from sales, indicating that the company is more

successful and efficient. Based on the findings of Mulyadi, Sihabudin, and Sinaga

(2020), current ratio, net profit margin, and excellent corporate governance all

have a substantial impact on changes in firm performance.  According to Bionda

and Mahdar (2017) research, Net Profit Margin has a favorable and significant

influence on profits growth. However, this contradicts the findings of Wardhani

(2019) research, which found that Net Profit Margin had no significant influence

on earnings fluctuations.
Return on Investment (ROI)

Return On Investment (ROI) is a measure of a company's management's

performance in managing its investment. ROI can be used as an indicator in

assessing the company's performance in this case to assess its effect on the

value of the company reflected in stock prices, investors will see the company's

performance and decide whether to invest or not by looking at the value of the

return-on-investment ratio (Sunaryo, 2015). Several research have been

conducted, yielding various results on the profitability of return on investment

(ROI) and financial risk in stock price. According to Tyas and Saputra (2016),

based on the study's findings, NPM and ROI via the t-test had a significant

influence on stock prices, however ROE and EPS through the t-test had no

significant effect on stock prices. According to the findings of Kurnia (2017)'s

study, Return On Investment (ROI) had a substantial influence on stock prices,

however Financial Risk had no significant effect on stock prices. Wangarry,

Poputra, and Runtu (2015) discovered that Return on Investment (ROI) and Debt

to Equity Ratio (DER) had no significant influence on stock prices.  Net Profit

Margin (NPM) has a small but considerable impact on stock prices. At the same

time, Return on Investment (ROI), Net Profit Margin (NPM), and Debt to Equity

Ratio (DER) all have a substantial impact on stock prices.

Return on Assets 

Return on Assets (ROA) is a ratio that demonstrates how important an

asset is in generating a profit (Hery, 2015). Ratio analysis is a form or manner

that is commonly used in analyzing the financial statements of a company. The

higher the ROA ratio, the more efficient and effective the company's asset

management is. By using tools such as ratio analysis will be able to explain or

illustrate the analyzer about the good and bad circumstances or financial position

of a company (Heikal, Khaddafi & Ummah, 2014).

ROA refers to how efficient an organization is with the use of its assets.

Parhusip, Topowijono & Sulasmiyati (2016) discovered that Return On Assets

(ROA) has a substantial influence on its worth and Supriyadi (2021)

demonstrated that Return on Assets and Return on Investment on Equity have a

beneficial impact on the company's value. However, Cahyanto, Darminto &

Topowijono (2014) and Agustiani (2016) demonstrate that the ROA variable has

no meaningful partial influence on the company's value.

Return on Equity (ROE)

ROE shows how effective a firm is in utilizing its equity (Pointer &  Khoi ,

2019). The ratio Return on Equity (ROE) measures the profitability of the

investment made by owners of the company's own capital or shareholders and

demonstrates how successfully businesses manage their own money (net worth).

McClure (2018) indicates that ROE is one of the most important of all the

essential financial ratios. These ratios are also related to the capital structure of

various organizations. Majed (2012) discovered that three ratios of ROA, ROE

and ROI together showed a strong and positive relationship with share prices

with 45.7% relationship. High profitability shows good company prospects so that

investors will respond positively to these signals prompting the increase of firm

value (Husna & Satria, 2019). This is understandable because the company that
managed to record increased profits indicates that the company has a good

performance that generates a positive sentiment for investors and increases the

company’s stock price. Cahyanto et al. (2014) demonstrate that ROE factors

have a marginally significant influence on their value. Agustiani et al. (2016) and

Rosikah (2018), on the other hand, determined that Return on Equity (ROE) had

no meaningful influence on the company's value. Increasing stock prices in the

market will increase the firm value. This is supported by the results of (Terpstra

and Verbeeten, 2014) finding that profitability ratio as measured by ROI or ROA

has a significant effect on firm value. 

Economic Value Added (EVA)

Economic Value Added (EVA) has been acclaimed as the most current

and interesting invention in the managerial performance evaluation measure.

Previous study deems EVA to be more powerful than standard accounting profit

metrics in explaining market appraisal of the organization. EVA is a value-based

financial performance metric that represents the absolute amount of shareholder

wealth created each year, both rising and falling (Sikarwar & Gupta, 2016). In

other words, EVA can assess how much a firm has enhanced shareholder value.

According to Parvaei and Farhadi (2013), among other indicators, EVA is the

best tool for analyzing business and management performance. According to

Sirbu (2012), EVA offers an efficient strategy to manage shareholder value by

aligning management's objectives with those of shareholders, improving

accountability, and enabling improved performance monitoring.

Budgeting Practices and Profitability

 The study of Mulani (2015) Investigated how the budgetary procedure

affected the performance of India's SME sector. The budgeting procedure has a

positive effect on the firm's success, according to the study. The study also found

that companies with strict but attainable goals improve the success of SMEs in

India by raising employee engagement levels and helping them stick to

budgetary goals. The study also found that the nature of the budget targets

affected how well SMEs in India performed.

 In the study of Silva and Jayamaha et al. (2012) the researchers

evaluated the garment industry's budgetary process using factors like planning,

coordination, control, communication, and evaluation. Return on Assets was

utilized in the study to assess the performance of Sri Lanka's garment sector.

The researchers discovered from the data taken from the financial accounts that

there is a strong correlation between a firm's performance and its budgetary

process. The study came to the additional conclusion that garment businesses

maintain a successful financial approach, which raises their performance

standards. (Salva and Jayamaha, 2013).

An empirical review of small and medium-sized enterprises (SMEs) in the

Czech Republic. The primary objective of the study was to review recent

research on important SME financial management concerns. The study found

that the key choices financial managers must make are financial, capital

budgeting, and working capital management choices, all of which have a direct

and significant impact on the profitability and performance of the company as a

whole. The researcher also found that a big issue for SMEs is poor financial

management, including bad budgeting (Jindrichovska, 2013).

Chapter III
RESEARCH METHODOLOGY

This chapter describes the techniques and approaches that will be

employed in the study's execution. It consists of the research design, study

respondents, data collection instrument, data collection technique, and statistical

treatment to achieve the research objectives.

Research Design

A descriptive research design was applied to this study to examine how

the budgeting practices affects the performance of small and medium enterprises

in Tacurong City, Sultan Kudarat. The research design is the overall strategy for

addressing research questions. It includes specific objectives derived from

research questions, such as the sources from which the researchers intend to

collect data and how the researchers intend to collect and analyze it. (Egbunike

& Abiahu, 2016) The research design refers to the various methods that can be

utilized to answer the question at hand.  A descriptive approach establishes a

quantitative paradigm, which will serve as the primary paradigm in the current

study. The quantitative paradigm provides quantitative evidence to all questions

concerning 'what' the extent of the budgeting process in Tacurong SMEs and

'whether' the budgeting practices has a significant impact on firm performance. 

The scientific method of descriptive survey research was defined as which

data is gathered without altering the environment. It includes various types of

surveys and fact-finding inquiries that seek to obtain information that reveals

existing phenomena. Primary research methods were used in the design to

collect primary data. The justification for using this design is that it will investigate

the current status of two or more variables at a given time while taking advantage

of up-to-date data.

Respondents of the Study

The study's respondents were the small and medium-sized business

owners in Tacurong City, with a focus on SMEs that have been in operation for at

least a year. According to the City Government's Licensing Office, Tacurong City,

Sultan Kudarat has 182 small enterprises and 56 medium enterprises, for a total

of 238. The respondents will be the 113 small and 35 medium enterprises of

Tacurong City with a total of 148 respondents. The sample was taken with a 5%

margin of error and 95% confidence level. The sample size for this study has

been determined using the Slovin’s formula. 

It is computed as n = N / (1+Ne2). 

whereas: 

n = no. of samples

N = total population

e = error margin / margin of error

 The study employed probability sampling, which is choosing a sample

from a population based on the idea of randomization, often known as random

selection or chance. The researchers will specifically employ the stratified

sampling technique. 

Data Gathering Instrument

An adapted and modified questionnaire was used to measure and

establish the relationship between the two variables. The researchers used two

instruments. The first instrument measured the level of budgeting processes of

small and medium enterprises. The instrument is based on Abongo (2017). The

budget process has the following indicators: budget planning, budget control,

budget coordination, budget communication and budgetary evaluation process.

The respondents indicated their answers using a five-point Likert scale that

ranges from 5-1 with descriptions from "Strongly agree" to "Strongly disagree".

While secondary data was collected from SME’s journal and city licensing

journal.

Data Gathering Procedure   

The researchers and the adviser, all signed a letter that the researchers

will send to the city mayor asking for authorization to do the research in the area.

Once the letter has been approved, the researchers will start the survey.

The study's goals and the study's context will guide the preparation of a survey

questionnaire. The study's aims and purpose will be conveyed to the

respondents by the researcher as they conduct the investigation.

 The research instrument's data was totaled and calculated by the

researchers working with a statistician and adviser. The results will be useful in

determining whether or not the variables have a meaningful relationship.

Statistical Treatment

The following statistical techniques was used to total and analyze the

information obtained from the questionnaires:

To assess the budgeting practices and profitability used by SMEs was

analyzed using sum and mean. Utilizing sum and mean analysis, the budgeting

and control methods employed by SMEs will be evaluated. The mean is

calculated by dividing the total number of numbers in the collection by their sum.

This will be used to evaluate the small and medium firms' performance in

Tacurong City as well as their level of enterprise risk management.

Moreover, to determine if budgeting practices has significant influence on

profitability of SMEs in Tacurong City the regression method, particularly multiple

linear regression will be employed. The regression model for assessing the effect

of budgeting process and control on the overall performance of small and

medium-sized enterprises in Tacurong City is presented below.

Statistical Analysis

Different method of analysis was employed in this study. The discussions

for the analysis were based on the objectives.

 To assess the budgeting process and control used by SMEs, descriptive

qualitative statistical tools such as weighted mean were used. 

Table 1. Scale and Interpretation of Budgeting Process used by SMEs

Range of Descriptive Interpretation

Means Level

4.21 - 5.00 Very High The extent to which budgeting practices

are followed is very high

3.41 – 4.20 High The extent to which budgeting practices

are followed is high

2.61 – 3.40 Moderate The extent to which budgeting practices

are followed is moderately

1.81 – 2.60 Low The extent to which budgeting practices

are followed is low

1.00 – 1.80 Very Low The extent to which budgeting practices

are followed is very low

Table 2. Scale and Interpretation of Profitability used by SMEs

Range of Descriptive Interpretation

Means Level
 4.21 – 5.00 Very High The profitability of SME's is very high

3.41 – 4.20 High The profitability of SME's is high

2.61 – 3.40 Moderate The profitability of SME's is moderate

1.81 – 2.60 Low The profitability of SME's is low

1.00 – 1.80 Very Low The profitability of SME's is very low

Chapter IV
RESULTS AND DISCUSSION

The analysis of the data collected from the small and medium- sized

enterprises of Tacurong City is presented in this chapter. Adopted questionnaire

were sent to respondents who were the owners or managers of the small and

medium - sized enterprises in Tacurong City.

Business Profile of SMEs in Tacurong City, Sultan Kudarat

The following tables show the business profile of SMEs in terms of their

type of the business, size of the business, number of years in the business, and

the structure of budgeting practices of enterprises.

Table 3.1 Business Profile of the SMEs in terms of their Type of the

Business

Type of the Business

Frequency Percent

Valid Sole 104 70.3%

Corporation 44 29.7%
 Total 148 100%

Table 3.1 above summarizes the demographic profile of the respondents

in terms of their type of business. With regards to the type of business, sole

proprietorships have the highest percentage of respondents 104 or 70.3% out of

148 respondents. While 44 or 29.7% were corporations, and 0% for partnership.

Table 3.2 Business Profile of the SMEs in terms of their Size of the

Business

Size of the Business

Frequency Percent

Valid Small 113 76.4%

Medium 35 23.6%

Total  148 100%

Table 3.2 above summarizes the demographic profile of the respondents

in terms of their size of the business. Regarding the size of the business, most of

the respondents were small - sized enterprises (113 or 76.4% out of 148). In

comparison, 35 or 23.6% were medium - sized enterprises. The result implies

that small - sized enterprises dominate the industry. As per record of Philippine

Statistics Authority of the 2016 List of Establishments, there are a total of

915,726 businesses operating in the Philippines, of which 9.50% (86,955) were

small enterprises, and 0.44% (4,018) were medium enterprises.

Table 3.3 Business Profile of the SMEs in terms of their Number of Years in

Business

Number of Years in Business

Frequency Percent

Valid 1 - 5 years 39 26.4

6 – 10 74 50.0

11 – 15 35 23.6

Total 148 100..0

Table 3.2 above summarizes the business profile of the respondents in terms of

their number of years in their business. It revealed that most of the respondents

are operating for 6 - 10 years with 50% or frequency of 74 and the least number

of respondents operate for 11 - 15 years with 23.6% or frequency of 35. 

Table 4.1 The extent of budgeting practices of Small and Medium

Enterprises in terms of Budget Planning

Item Mean Descriptive Level

The enterprise creates budgets for their

respective departments which are 4.43 Very High

subsequently combined to create the

master budget.

The enterprise communicates budget

strategies to people responsible for
4.26 Very High
budget preparation.

The enterprise past data is used as a

starting point to develop budget plans 4.35 Very High

The budget plan in the enterprise

specifies the allowances and variances 4.11 High

to the different parameters.

The procedures that should be followed

in the enterprise throughout the 3.99 High

budgeting processes are specified in the

budget plan
 Overall 4.23 Very High

Table 4.1 shows the extent of budgeting practices of Small and Medium

Enterprises in terms of budget planning and it has an overall mean of 4.23 and

has a descriptive level of very high. According to Whatman (2023) budget

planning is one of the most important components of the plan since it keeps you

focused and on track as the company expands, new issues occur, and

unanticipated crises strike. Therefore, the results demonstrate that SME's in

Tacurong City have a budget and construct processes and plans that they follow.

Table 4.2 The extent of budgeting practices of Small and Medium

Enterprises in terms of Budget Control

Item Mean Descriptive

Level

Budgeting control allows the 3.91 High

enterprise to match actual outcomes with the
strategy.
The strategic planning and operational 3.96 High
management in the enterprise are connected
through budgeting control.
The operational budget control in the 4.05 High
enterprise comprises comparing actual costs
and spending to the plan and taking the
appropriate corrective action.
The process of managing the budget in the 4 High
enterprise starts at the bottom and moves
up.
Budget management in the enterprise 4.05 High
 helps in recognizing budget fluctuation which
allows the elimination of some
Overall 3.99 High

Table 4.2 shows the extent of budgeting practices of Small and Medium

Enterprises in terms of budget control and it has an overall mean of 3.99 and has

a descriptive level of high. When corporate organizations adopt continuous

budgetary management, it is usually simple to foresee operational changes and

respond immediately to them by making certain modifications (Chaudhary, 2019).

Thus, the result implies that budgetary control plays an essential role in the

proper allocation and mobilization of resources, which reduces wasteful costs

and increases income creation.

Table 4.3 The extent of budgeting practices of Small and Medium

Enterprises in terms of Budget Coordination

Item Mean Descriptiv

e Level

The enterprise guarantees that

increasing employee participation in 4.06 High
planning would increase effective
budgeting processes.
The enterprise places a strong
emphasis on information sharing 3.97 High
and exchange amongst all levels of
management.
Computers are used by the
enterprise to help in budgetary 4.04 High
coordination.

Overall 4.03 High

Table 4.3 shows the extent of budgeting practices of Small and Medium

Enterprises in terms of budget coordination and it has an overall mean of 4.03

and has a descriptive level of high. According to Assey (2014) research, the

numerous operations inside a corporation should be coordinated via the

formulation of action plans for future periods. The results reveal that SMEs

maximize proper resource use in appropriate and right methods.

Table 4.4 The extent of budgeting practices of Small and Medium

Enterprises in terms of Budget Communication

Item Mean Descriptive Data

The enterprise is clear about its 4.06 High

roles in developing an effective budgeting
process.
The enterprise develops a budget
to describe the goals and aspirations in 3.97 High
order to increase understanding.
The enterprise provides a
justification for their budget choice. 4.04 High
The enterprise enhances
communication when it comes to 4.07 High
budgeting. 
The enterprise notifies all
significant parties of the effects of budget 4 High
decisions.
 Overall 3.99 High

Table 4.4 shows the extent of budgeting practices of Small and Medium

Enterprises in terms of budget communication and it has an overall mean of 3.99

and has a descriptive level of high. Strong budget institutions, together with clear

communication and budgetary openness, increase confidence, according to

Rosenberg (2021). Credibility, in turn, enhances access to loans and provides

more leeway in times of crisis. Based on the result, the firm promotes budgeting

communication and notifies all relevant stakeholders of the consequences of

budget decisions.

Table 4.5 The extent of budgeting practices of Small and Medium

Enterprises in terms of Budgetary Evaluation Process

Item Mean Descriptive Data

The enterprise actively 3.99 High

participates in the evaluation and
oversight of the budgetary process.
The enterprise assesses the 4.19 High
effects of budget implementation.
Assessment is done by a body 4.07 High
that is independent of the enterprise
and has sufficient resources and
capacity to do so.
The enterprise assesses 4.05 High
whether resources have been used
properly and effectively
 Overall 3.99 High

Table 4.5 shows the extent of budgeting practices of Small and Medium

Enterprises in terms of budgetary evaluation process and it has an overall mean

of 3.99 and has a descriptive level of high. The budgeting process includes

actions such as development and implementation. The development, execution,

and assessment of a plan for the supply of services and capital assets provides a

chance for subordinates to become involved in planning and performance

measurement, a process that has historically been viewed as top management's

responsibility (Gudeta,2017). Thus, the results shows that budgetary evaluation

process is implemented by the enterprises in Tacurong City.

Table 5 Level of Profitability of Business Enterprise

INDICATORS MEAN DESCRIPTIVE LEVEL

Growth in Sales/Revenue 3.79 High

Profit Margin 3.95 High

Return on Investment (ROI) 4.06 High

Return on Assets (ROA) 4.05 High

Return On Equity (ROE) 3.93 High

Economic Value Added (EVA) 3.89 High

Total 3.95 High

 Table 5 represents the degree of profitability among business firms.

Return on Investment had the highest mean of 4.06 among respondents. (ROI).

All of the indications are quite profitable. Furthermore, the grand mean of 3.95

indicates that the respondents had a high degree of profitability. As a result,

small and medium-sized businesses appear to be profitable. The study by Harb

(2019) confirmed the finding that increasing productive efficiency was

significantly influenced by profitability and financial performance.

Significant Impact of Budgeting Practices on the Profitability of Small and

Medium Sized Enterprises

Table 6. Model Summary

Model R R-Square Adjusted R Std. Error of

Square the estimate

1 .425a .180 .152 .33515

a. Predictors: (Constant) budget planning, budget control, budget coordination,

budget communication, budgetary evaluation process

The model summary shows that correlation coefficient of R was .425. An

adjusted R square of .152 means that budget planning, budget control, budget

coordination, budget communication and budgetary evaluation process can

impact the profitability by 15.2% while the remaining 84.8% are affected by other

variables that was not within the scope of the study.

Table 7. ANOVA

Model Sum of df Mean F Sig.

 Squares Square

1 Regressio 3.512 5 .702 6.253 .000b

Residual 15.951 142 .112

Total 19.462 147

a. Dependent Variable: profitability

b. Predictors: (Constant) budget planning, budget control, budget
coordination, budget communication, budgetary evaluation process

In this study, the confidence interval is 95% and the level of significance is

5%. It can be seen in table 6 that the degree of freedom is at (5, 147) with the F

value of 6.253 and with a significant value of .000 which is less than 0.05. As a

result, it demonstrates that the dependent variable is statistically substantially

predicted by the regression model.

Table 8. Regression Coefficients

Unstandardized Standardized

Coefficients Coefficients

Std.

Model B Error Beta t Sig.

1 (Constant) 1.748 .442 3.952 .000

planning .095 .095 .087 .999 .320

control .096 .115 .102 .831 .407

coordination .052 .114 .056 .454 .651

 communication .252 .095 .251 2.653 .009

process .054 .096 .050 .557 .578

a. Dependent Variable: Profitability

Presented in Table 8 is the result of regression analysis made on

budgeting practices and profitability of SME’s in Tacurong City. The data

revealed that not all domains of budgeting practices have significant impact on

profitability of SME. The result showed a budget planning domain, t=.999, p=.320

which is greater than 0.05. Thus, the null hypothesis is accepted, which means

that the planning process has no significant influence on the profitability of small

and medium enterprises. 

Budget control domain has, t=.831,p=.407 which is more than 0.05.

Hence, the null hypothesis is accepted. This implies that the controlling process

has no significant influence on the profitability of small and medium enterprises.

Budget coordination domain has, t=.454, p=.651 which is higher than 0.05.

This means null hypothesis is accepted which implies the coordinating process

has no significant influence on the profitability of small and medium enterprises.

Budget communication domain, t= 2.653, p=.009 which is less than 0.05.

This shows that null hypothesis is rejected which reveals that the communication

process has significant influence on the profitability of small and medium

enterprises. Moreover, it also supports the study of Matsoso, Nyathi, and

Nakpodia (2021) which reinforces the communication power of budgeting and

budgetary controls by incentivizing SMEs and economic agents to assist in the

achievement of corporate objectives.

 Budgetary evaluation process domain has a t=.557, p=.578 which is

higher than 0.05 which shows that null hypothesis is accepted. It means that the

evaluation process has no significant influence on the profitability of small and

medium enterprises.

Chapter V
SUMMARY, CONCLUSION AND RECOMMENDATIONS

  This chapter shows the summary, conclusion and recommendations of the

study. The study objective was to determine the impact of budgeting practices on

the profitability of small and medium - sized enterprises in Tacurong City. The

chapter also show the recommendations for policy and practice as well as

suggestions for further research

Summary

  The study sought to determine how the budgeting practices impacts the

profitability of small and medium - sized enterprises in Tacurong City. The study

employed descriptive techniques such as standard deviations and means to

analyze data. The findings were presented in figures and tables. In order to

establish the relationship between budgeting practices and profitability,

regression analysis was done using Statistical Package for Social Sciences

(SPSS). 

On the extent of budgeting practices implemented by SMEs in Tacurong

City, the study found out that budget planning, budget control, budget

coordination, budget communication and budgetary evaluation process have

been implemented to a very large extent. However, the respondents had differing

opinions in regard to the extent to which budget practices are practiced. This

indicates that the SMES in Tacurong City have adopted all the practices of

budgeting.

Conclusion

In regard to the impact of budget planning on the profitability of the SMEs  

in Tacurong City, the researcher concludes that budget planning has no

significant impact on the profitability of the SMEs in Tacurong City. Concerning

the impact of budget control on the profitability of the SMEs  in Tacurong City, the

researcher established that budget control has no significant impact on the

profitability of the SMEs  in Tacurong City.

On how budget coordination influences the profitability of the SMEs  in

Tacurong City, the study found out that budget coordination has no significant

impact on the profitability of the SMEs  in Tacurong City. On how budget

communication influences profitability of the SMEs  in Tacurong City, the study

found out that budget communication has a positive impact which is statistically

significant to the profitability of the SMEs  in Tacurong City.

In regard to the impact of the budgetary evaluation process on the

profitability of the SMEs  in Tacurong City, the study found out that budgetary

evaluation has no significant impact on the profitability of the SMEs  in Tacurong

City. The researcher concluded that there is a weak association between the

profitability and budgeting practices of SMEs in Tacurong City. Thus, accept null

hypothesis.

Recommendations

The focus of the study was narrowed to the SMEs in Tacurong City. This

implies that the study's results are restricted to SMEs and cannot, therefore, be

generalized to larger companies like commercial banks and manufacturing

corporations. In the future, a similar study should be conducted among large

businesses to learn how budgeting practices impact profitability. The researcher

will then be able to assess the impact of the budgeting practices on large

companies and SMEs.