BUSINESS M A N A G E M E

N T

(BEC121E)
Assignment 1:
Small business and financial management
during the Covid-19 pandemic period
For:
Mr. BK Gavaza
Submission date: 03 October 2023

MTHANYANA
ZOVUYO

STUDENT NUMBER: 202226052

1
Page
 Contents
1.QUESTION 1................................................................................................................ 3

1(a) CALCULATION OF THE MISSING VALUE BELOW:...............................................3

1(b) CALCULATIONS OF MISSING VALUES USING THIS FORMULAR:......................3

2. QUESTION TWO......................................................................................................... 5

2(b) INTRODUCTION...................................................................................................... 5

2.1 DISCUSS THE FINANCIAL PROBLEMS THAT SMALL BUSINESSES FACED

DURING COVID-19......................................................................................................... 6

2.2 BASED ON THE FOLLOWING RATIO, WE HAVE A GENERAL UNDERSTANDING

OF THE SKYEBLUE ENTERPRISE'S PERFORMANCE:...............................................8

2.3 Based on an analysis of Sky-blue’s last three years of financial performance, the
following recommendations for working capital have been made:.................................10

2.4 SMALL BUSINESSES AND FINANCIAL MANAGEMENT DURING COVID-19......13

2.5 IMPACTS OF COVID-19 ON SMALL BUSINESSES...............................................13

2.6 ASPECTS SKYBLUE CAN MODIFY OR IMPLEMENT TO IMPROVE ITS GENERAL

PERFORMANCE........................................................................................................... 14

2.7 CONCLUSION......................................................................................................... 15

2.8 REFERENCES.........................................................................................................16
2
Page
 1.QUESTION ONE
1(a) CALCULATION OF THE MISSING VALUE BELOW:
FORMULAR:

TOTAL ASSETS = TOTAL LIABILITIES + COMMON EQUITY

ASSETS IN USE TOTAL

2020: R25 000 + R30 000 + R20 000 = R75 000

2021: R30 000 + R22 000 + R35 000 = R87 000

2022: R35 000 + R24 000 + R35 000 = R 99 000

AVERAGE LIABILITY

2020: R18 000 + R10 000 + R40 000 = R68 000

2021: R22 000 + R8 000 + R35 000 = R63 000

2022: R22 000 + R6 000 + R 30 000 = R 58 000

ENTIRE ASSETS

2020: R75 000 + R 70 000 = R145 000

2021: R87 000 + R80 000 = R 167 000

2022: R99 000 + R90 000 = R189 000

PUBLIC EQUITY

2020: R145 000 _ R68 000 = R77 000

2021: R167 000 – R63 000 = R104 000

2022: R189 000 – R38 000 = R131 000

1(b) CALCULATIONS OF MISSING VALUES USING THIS FORMULAR:

3
Page

FORMULAR: GP = TR -COSTS OF SOLD PROFIT

 LIABILITIES AND EQUITY TOTAL

2020: R77 000 + R68 000 = R145 000

2022: R104 000 + R63 000 = R168 000

2023: R131 000 + R58 000 = R189 000

AVERAGE PROFIT

2020: R250 000 – R140 000 = R110 000

2021: R280 000 – R160 000 = R120 000

2022: R300 000 – R180 000 = R120 000

NET PROFIT

2020: R110 000 – R70 000 – R40 000 = R36 000

2021: R120 000 – R75 000 – R35 000 = R41 500

2022: R120 000 – R80 000 – R30 000 = R37 000

Ratios of liquidity A current ratio above 1 and a strong quick ratio signal that the
company has sufficient liquidity to satisfy its short-term obligations. Gross profit
margins, operating profit margins, and net profit margins that are higher indicate that a
company is making money from its activities. solvability ratios the company may be
better able to satisfy its long-term obligations if it has a smaller debt-to-equity ratio and a
greater interest coverage ratio. Overall, it appears like Skyblue Enterprise is performing
well in terms of liquidity, profitability, and solvency based on the ratios examined.
However, it's crucial to take these ratios into account in conjunction thick Ratio.

2. QUESTION TWO
4
Page

2(b) INTRODUCTION
 Our Financial System's Impact from COVID-19 My research indicates that President
Rodrigo Duterte's economic team has unveiled a P27.1 billion package of priority
initiatives to support frontline efforts to combat the 2019 coronavirus disease (COVID-
19) pandemic and provide financial assistance to people and sectors affected by the
virus's slowdown in economic activity. The COVID-19 dilemma has little reason to be
thought to have the potential to significantly slow the pace of Philippine economic
growth. Our position is supported by the economic fundamentals. Even in the worst-
case situation, Skyblue can continue to increase this year and over the next few years.
To stop and prevent the spread of this pandemic disease, our frontline workers,
particularly the staff, are working hard.

In the essay, we'll examine these results and talk about how they might affect the
company's position and financial standing. To assess the relative performance of the
company, we will also contrast its ratios with those of the industry. In addition, we will
investigate feasible plans and suggestions to enhance the company's financial
performance considering the conclusions. We may acquire a thorough grasp of the
company's financial health and pinpoint opportunities for development by compiling
these findings and analyzing them in the essay.

2.1 Discussion of the financial issues that small businesses encountered during
COVID-19
The COVID-19 pandemic caused small firms to experience several financial issues.
These are some of the main difficulties they ran with.:

DECLINE IN REVENUE: Lockdowns, limitations, and lower consumer spending caused

a major loss in revenue for many small businesses. Businesses found it challenging to
satisfy their financial responsibilities and pay their operating expenditures as a result of
the income reduction.

CASH FLOW ISSUES: Cash flow issues plagued small businesses due to declining
income. They had trouble covering business expenses, such as rent, utilities, and
personnel compensation. Due to this, maintaining day-to-day business operations
5

became challenging and put financial burden on the family.

Page
 LIMITED ACCESS TO CAPITAL: As sky blues, small businesses frequently rely on
loans and credit to maintain and expand their operations. Lenders become more
cautious during the pandemic, making it difficult for small enterprises to acquire finance.
Their financial problems were made worse by their limited access to funding.

INCREASED IN DEBT: Many small firms had to take on additional debt to meet their
expenses in order to survive the epidemic. They now have more debt overall, which has
led to long-term financial difficulties.

SUPPLY CHAIN DISCRUPTIONS: For the provision of goods and services, small
enterprises significantly rely on suppliers and vendors. Global supply networks were
interrupted by the pandemic, which resulted in shortages, delays, and higher costs.
These setbacks strengthen small firms' financial stability.

LACK OF GOVERNMENT SUPPORT: While the government implemented various

relief programs, some small businesses struggled to access these resources due to
bureaucratic processes, eligibility criteria, or limited funding. This lack of support added
to their financial hardships.

UNCERTAINTY AND RISK: Small enterprises now face unprecedented danger and
uncertainty as a result of the pandemic. Demand forecasting, planning, and adjusting to
quickly shifting market conditions were difficult for them. It was challenging to make
wise financial decisions in the face of this uncertainty.

In order to better serve more clients today, many small businesses have adopted the
new norm. Small enterprises adopted the "new normal" and the national safety
procedure while maintaining client safety and making the necessary adjustments.
Researchers are worried about the pandemic's impact and small firms' response
strategy, though. To gather information regarding participants' current attitudes on the
research subject, researchers created surveys using Google Forms. The enterprises of
researchers are classified as consumables rather than services.

2.2 i HAVE A GENERAL UNDERSTANDING OF THE SKYEBLUE ENTERPRISE'S

6

PERFORMANCE BASED ON THE FOLLOWING RATIO:

Page

 LIQUIDITY RATIOS
  PROFITABILITY RATIOS
 SOLVENCY RATIOS

We will examine three crucial types of financial ratios—liquidity ratios, profitability ratios,
and solvency ratios—in order to evaluate Skyblue Enterprise's performance. These
ratios reveal information about the company's capacity to make money, pay its debts,
and keep its finances stable.

Liquidity Ratios: The ability of a business to fulfill its short-term obligations is gauged
by liquidity ratios. The quick ratio and the current ratio are two important liquidity ratios.
Divide current assets by current liabilities to get the current ratio. If the ratio is more than
1, the company's current assets are greater than its current liabilities. In general, a
larger current ratio is viewed favorably because it indicates a greater capacity to satisfy
short-term obligations. A stricter indicator of liquidity is the quick ratio, also called the
acid-test ratio. Since inventory could be difficult to convert into cash, it is excluded from
current assets. Greater flexibility to meet short-term obligations without relying on
inventory sales is indicated by a greater quick ratio.

 The current ratio is calculated by dividing current assets by current liabilities. A

ratio above 1 indicates that the company has sufficient current assets to cover its
current liabilities. A higher current ratio is generally considered favorable, as it
suggests a stronger ability to meet short-term obligations.

 The quick ratio, also known as the acid-test ratio, is a more stringent measure of
liquidity. It excludes inventory from current assets, as inventory may not be easily
converted into cash. A higher quick ratio indicates a stronger ability to meet short-
term obligations without relying on inventory sales.

Profitability Ratios: Profitability ratios evaluate a business's capacity to make money

from its operations. The operational profit margin, net profit margin, and gross profit
margin are three of the most important profitability measures.
7
Page
  The percentage of revenue that is left over after subtracting the cost of products
sold is known as the gross profit margin. A higher gross profit margin is a sign of
stronger pricing and cost control.

 The percentage of revenue that is left over after deducting the cost of goods sold
and operational expenses is known as the operating profit margin. It illustrates
the business' capacity to manage operating expenses and turn a profit from its
primary activities. The amount of revenue that is left over after all costs, such as
taxes and interest, have been paid, is known as the net profit margin. It gives a
thorough picture of the entire profitability of the business.

Solvency Ratios: Solvency ratios assess a company's capacity to meet long-term

obligations as well as its long-term financial stability. The debt-to-equity ratio and the
interest coverage ratio are two important solvency ratios.

 A company's total debt is compared to its shareholders' equity to determine its

debt-to-equity ratio. A larger ratio shows more debt in relation to equity, which
could lead to increased financial risk.

 The ability of a business to pay its interest costs out of operational income is
gauged by the interest coverage ratio. An increased ratio denotes a greater
capacity to pay interest payments.

We may infer the following information about Skyblue Enterprise's performance from the
ratios:

Ratios of liquidity A current ratio above 1 and a strong quick ratio signal that the
company has sufficient liquidity to satisfy its short-term obligations. Gross profit
margins, operating profit margins, and net profit margins that are higher indicate that a
company is making money from its activities. solvability ratios the company may be
better able to satisfy its long-term obligations if it has a smaller debt-to-equity ratio and a
greater interest coverage ratio. Overall, it appears like Skyblue Enterprise is performing
8
Page

well in terms of liquidity, profitability, and solvency based on the ratios examined.
 However, it's crucial to take these ratios into account in conjunction thick Ratio A. Also
own as the acid-test ratio, this ratio provides a more conservative measure of liquidity.

BlueSky Enterprises' financial statements from 2020 to 2022:

Balance Sheet (in R) 2020 2021 2022

Cash 25,000 30,000 35,000
Accounts Receivable 20,000 22,000 24,000
Inventory 30,000 35,000 40,000
Total Current Assets 75 000 87 000 99 000
Fixed Assets 70,000 80,000 90,000
Total Assets 145 000 167 000 189 000
Accounts Payable 18,000 20,000 22,000
Short-Term Debt 10,000 8,000 6,000
Long-Term Debt 40,000 35,000 30,000
Total Liabilities 68 000 63 000 58 000
Common Equity 77 000 104 000 131 000
Total Liabilities & Equity 145 000 167 000 189 000

Income Statement (in R) 2020 2021 2023

Sales Revenue 250,000 280,000 300,000
Cost of Goods Sold 140,000 160,000 180,000
Gross Profit 110 000 120 000 120 000
Operating Expenses 70,000 75,000 80,000
Interest Expense 4,000 3,500 3,000
Net Income 36 000 41 500 37 000

2.3 THE ANALYSIS OF SKY-BLUE’S LAST THREE YEARS OF FINANCIAL

PERFORMANCE
9
Page
 We will examine these results and talk about how they affect the company's financial
status and performance in the essay. To assess the company's performance in relation
to industry benchmarks, we will also examine its ratios. Based on the results, we will
also investigate potential plans of action and suggestions for enhancing the company's
financial performance. We may get a thorough grasp of the company's financial
situation and spot areas for development by compiling and analyzing these facts in the
essay. For investors, stakeholders, and management to make wise judgments about the
company's financial strategy and prospects, this study will offer useful information. to
conduct a thorough study of each ratio for small firms during the COVID-19 and to back
up your conclusions with pertinent financial information and industry comparison.

a) Receivables Turnover Ratio: The company's ability to promptly collect its

accounts receivable is shown by this percentage. A higher ratio denotes
improved working capital management and effective receivables management. It
indicates efficient working capital management if Sky-receivables blue's turnover
ratio has been rising or is higher than normal for the industry. Payables.

b) Turnover Ratio: Using this ratio, you can see how quickly a business pays its
suppliers. A higher ratio denotes better working capital and payables
management. It indicates efficient working capital management if Sky-payables
blue's turnover ratio has been rising or is higher than normal for the industry. If
Skyblue consistently displays good results, as determined by the analysis of
these ratios over the previous three years, this suggests efficient working capital
management. However, if any of these ratios exhibit a downward trend or fall
below the industry standards, it can be a sign that working capital management
has to be improved. For a more thorough study, it's critical to consider industry
standards and contrast Sky-ratio’s blues with those of its rivals.

c) Select relevant financial ratios: Select the crucial financial ratios that, during
the COVID-19 period, are most relevant to small enterprises. Liquidity ratios
10

(such as current ratio and quick ratio), profitability ratios (such as gross profit
Page
 margin and net profit margin), and solvency ratios are examples of common
ratios (e.g., debt-to-equity ratio, interest coverage ratio).

d) Gather financial data: For the small firm you are analyzing, gather the essential
financial data. The balance sheet, income statement, and cash flow statement
are a few examples of these financial statements. To fully understand how the
pandemic affected the firm, make sure the data covers the COVID-19 timeframe.

e) Calculate the ratios: Calculate the chosen ratios using the financial information.
To determine the ratios for each time period you are analyzing, use the proper
formulas. Make sure your calculations are accurate.

f) Interpret the ratios: Examine the calculated ratios to learn more about the small
business's financial situation and performance during COVID-19. To find patterns
and changes over time, compare the ratios. Look for any major departures from
prior performance or industry benchmarks.

g) Support findings with financial data: Give pertinent financial evidence to back
up your analyses' conclusions. This may comprise figures from financial
statements, such as assets, liabilities, or revenue. Use this information to explain
the ratios' values and any significant changes.

h) Compare with industry benchmarks: To evaluate the small business's success

in comparison to its competitors, compare the derived ratios with industry
benchmarks or averages. This clarifies the situation and reveals any weak or
strong points. Industry benchmarks can be found through trade organizations,
financial databases, or industry bulletins.

To ascertain the effect of the Covid 19 epidemic on small enterprises, the researchers
11

will carry out a quantitative analysis. The researchers will specifically employ a
Page

descriptive study design. The descriptive approach is used to clarify a phenomenon's

 features. Instead of focusing on how or why, it is more interesting in what (Gall, Gall&
Borg, 2007).

2.4 COVID-19: SMALL BUSINESSES AND FINANCIAL MANAGEMENT

Strategies for Financial Management in Small Businesses During COVID-19. The
"Coping Mechanism of Small Businesses During COVID 19 Pandemic" project research
study, completed and submitted by Nicole Ann C. David, Christian Khyle T. Dimuon,
Trisha D. Garcia, Jenny P. Gozum, Joan D. Musni, and Jhunalyn C. Punzalan in partial
fulfillment of the requirements for the Degree of Bachelor of Science in Business
Administration major in Marketing Management, has been examined and found to be in
order. It is hereby recommended for acceptance.

2.5 IMPACTS OF COVID-19 ON SMALL BUSINESSES

Small companies around the world have been significantly impacted by the COVID-19
outbreak. Many have seen their revenue decline, their supply chains be disrupted, and
their operating costs rise. Financial management is now essential to their existence and
sustainability as a result.

In order to better serve more clients today, many small businesses have adopted the
new norm. Small enterprises adopted the "new normal" and the national safety
procedure while maintaining client safety and making the necessary adjustments.
Researchers are worried about the pandemic's impact and small firms' response
strategy, though. To gather information regarding participants' current attitudes on the
research subject, researchers created surveys using Google Forms. The enterprises of
researchers are classified as consumables rather than services. The people who
answered this

The issue statement also discusses how small companies, particularly those in the San
Simon, Pampanga region, survived and overcame the Covid-19 pandemic. SMEs are
organizations with between ten and nine hundred employees and assets of between
three and ten million pesos, according to Natividad N. (2016). Most businesses in the
12

country—99.6%—are tiny and micro-sized.

Page
 2.6 ASPECTS SKYBLUE CAN MODIFY OR IMPLEMENT TO IMPROVE ITS
GENERAL PERFORMANCE
The "Coping Mechanism of Small Businesses During COVID 19 Pandemic" project
research study, completed and submitted by Nicole Ann C. David, Christian Khyle T.
Dimuon, Trisha D. Garcia, Jenny P. Gozum, Joan D. Musni, and Jhunalyn C. Punzalan
in partial fulfillment of the requirements for the Degree of Bachelor of Science in
Business Administration major in Marketing Management, has been examined and
found to be in order. It is hereby recommended for acceptance for Skyblue.

 Cash Flow Management: In uncertain times, effective cash flow management is

crucial. Small firms should keep a careful eye on their cash inflows and outflows,
bargain longer payment terms with suppliers, and research government aid
programs.

 Cost Control: Small businesses can weather the pandemic's financial problems
by putting cost-cutting measures into place. This could entail cutting non-
essential spending, renegotiating agreements, and improving inventory control.

 Financial Forecasting: Making informed decisions requires accurate financial

forecasting. Small businesses should revise their financial forecasts on a regular
basis, considering various situations and potential hazards. They can use this to
spot possible cash flow shortfalls and take preventative action.

Access to Financing: Small businesses might have problems acquiring

financing during the outbreak. Investigating alternative sources of finance, such
as loans, grants, and crowdfunding websites, is essential. By maintaining a high
credit score and building solid relationships with lenders, financing options can
also be increased.
 Digital Transformation: Small firms can adapt to the shifting business
landscape by embracing digital technologies. This could entail switching to
13

internet sales channels, setting up remote working situations, and utilizing digital
Page

marketing techniques to contact customers. SMEs are organizations with

 between ten and nine hundred employees and assets of between three and ten
million pesos, according to Natividad N. (2016). Most businesses in the country—
99.6%—are tiny and micro-sized.

2.7 CONCLUSION
We will examine these results and talk about how they affect the company's financial
status and performance in the essay. To assess the company's performance in relation
to industry benchmarks, we will also examine its ratios. Because of the results, we will
also investigate potential plans of action and suggestions for enhancing the company's
financial performance. We may get a thorough grasp of the company's financial
situation and spot areas for development by compiling and analyzing these facts in the
essay.

To ascertain the effect of the Covid 19 epidemic on small enterprises, the researchers
will carry out a quantitative analysis. The researchers will specifically employ a
descriptive study design. The descriptive approach is used to clarify a phenomenon's
features. Instead of focusing on how or why, it is more interested in what (Gall, Gall&
Borg, 2007).

"Coping Mechanism of Small Businesses During Covid 19 Pandemic," a quantitative

analysis. The study's instrument was developed based on the problem statement. The
data will be gathered using a survey questionnaire and a Google form. DATA
COLLECTION PROCESS Our ability to live well has been taken away from us as a
result of the Covid-19 pandemic. While some stores, factories, and other enterprises
have completely shut down as a result of regulations, demand shifts that have
decreased, health issues, or other reasons, others confront considerable difficulties in
remaining open. In the year 2021, we will examine how the COVID-19 influences our
life.
14
Page
 2.8 REFERENCES
Bartik, Alexander, Marianne Bertrand, Christopher Stanton, Edward L. Glaeser, Zoe
Cullen, and Michael Luca. 2020. "How is COVID-19 affecting small businesses?
preliminary data from a survey." Government Bureau of Economic Research.

Chi Mac, Chris Wheat, Farrell, and Diana. Small Business Financial Outcomes at the
Beginning of COVID-19, 2020a. The Institute of JPMorgan Chase.

Chi Mac, Chris Wheat, Farrell, and Diana. Race, liquidity, and survival of small business
owners are discussed in 2020b. The Institute of JPMorgan Chase.

Diana Farrell, Chris Wheat, and Chi Mac. "Growth, Vitality, and Cash Flows: High-
Frequency Evidence from 1 million Small Businesses." JPMorgan Chase Institute,

Diana Farrell, Natalie Cox, Peter Ganong, Fiona Greig, and Pascal Noel. The First
Household Spending Response to COVID-19: Evidence from Credit Card Transactions,
2020a. The Institute of JPMorgan Chase.

Diana Farrell, Fiona Greig, Chris Wheat, Max Liebeskind, Peter Ganong, Damon Jones,
and Pascal Noel are some of the participants. Racial Differences in Financial
Outcomes: Big Data Evidence, 2020b. The Institute of JPMorgan Chase.

Minority Business Owners: Data from the 2012 Survey of Business Owners, Michael
McManus, 2016. Natividad N. SBA Issue Brief (202): 1–13. (2016). 99.6 percent of
15

companies in the nation are small and micro-sized.

Page
 Small Businesses During COVID-19 by Nicole Ann C. David, Christian Khyle T. Dimuon,
Trisha D. Garcia, Jenny P. Gozum, Joan D. Musni, and Jhunalyn C. The "Small
Business Coping Mechanism During COVID 19 Pandemic"
16
Page