NOTREDAME OF DADIANGAS UNIVERISTY
Marist Avenue, General Santos City
GRADUATE SCHOOL
Financial Management Study of a Local Small Enterprise
BIONE ENTERPRISES
An Exit Paper in
BA 303 Advanced Financial Management with Managerial Accounting and Control
In Partial Fulfillment of the Requirements for the Degree
of Master in Business Administration
Submitted to:
Denise Meryl H. Javellana, CPA, MBA
Professor
Submitted by:
Balino, Gerlie
Banisil, Abdelnasir
Belais, Lovely
Cadapan, Laarni
Cargo, Angelica
Cominador, Janet
Dumbase, Shiela Mae
2020
EXECUTIVE SUMMARY
Bione Enterprises established in 2012 and a distributor/marketing that offers organic
products, Agri & aqua non-chemical treatment for waste, and consultation for waste
management. The business is a sole proprietorship by Ms. Jackie Lou S. Raposas who
has experience in running a business.
The presence of Bione Enterprises helps to less reliance on the use of chemicals
(antimicrobials, disinfectants, and pesticides) and to prevent health and environmental
risk. Conservation and sustainable agriculture and aquaculture are one of the long-term
goals of the company as the city aims for sustainable development.
The company's initial start-up expenditure of P50,000 is properly utilized to pay its
supplies, marketing, administrative cost, inventory, and labor for the first year. The
enterprise is being conservative in terms of financing its assets and has a low risk of
repaying its obligation for its assets because these are mostly financed by its owner’s
capital. The business capitalizes on a low number of competing business in the same
geographic area and expect a positive outcome and to generate positive net earnings in
incoming years.
The financial ratios together with the analysis that was based on the provided
financial statement in the years 2016, 2017 and 2018 is a tool for the researchers to
effectively communicate to the owner the recent business status. The provision of the
forecasted financial statement is prepared for the owner to have a detailed structure of
the projections in the future amounts in the financial statements. These procedures are
some of the steps to help in the strategic decision for Bione’s business operations.
TABLE OF CONTENTS
I. Company Profile ……………………………….…….… 1
II. Vision, Mission and Goals ………………………….… 2
III. Products …………………………………………..…….. 3
IV. Organizational Chart ………………………………..… 5
V. FINANCIAL STATEMENT ANALYSIS
a. Horizontal Analysis …………………………….. 6
b. Profitability Ratios
b.1. Return on Sales ……………………………... 8
b.2. Gross Profit Rate ………………………… 8
b.3. Return on Equity ……………………………… 9
c. Liquidity Ratios
c.1. Inventory Turnover ………………………… 9
c.2. Inventory Days ………………………………. 10
c.3. Asset Turnover ………………………………. 10
c.4. Current Ratio ………………………………. 11
c.5. Quick Asset Ratio …………………………. 11
d. Leverage Ratios
d.1. Debt-to-Equity Ratio ………………………… 12
d.2. Debt-to-Asset Ratio …………………………. 12
d.3. Equity Ratio …………………………………… 13
d.4. Equity Multiplier …………………………….... 13
VI. Financial Forecasting …………………………………… 15
VII. References …………………………………………...… 17
VIII. Curriculum Vitae …………………………………… 18
Company Name BIONE ENTERPRISES
Type of Company DISTRIBUTOR/ MARKETING
Products Offered ORGANIC PRODUCTS FOR AGRI/AQUACULTURE
NON-CHEMICAL TREATMENT FOR WASTE
Date Established Since 2012
Legal Status SOLE PROPRIETORSHIP
Owner JACKIE LOU S. RAPOSAS
Office Address B1 L4 BELLFLOWER ST., LA CASSANDRA SUBD
BRGY. SINAWAL, GENERAL SANTOS CITY
Telefax +63 083 8781417
DTI Reg Number 04436710
TIN 943-785-759-000
SSS Number 94-3785-759
PHIC Number 017010001419
1
II. Vision, Mission
and Goal
Vision
To be recognized as a successful marketing institution in the areas of
environmental technologies that provides high quality affordable,
effective and environmental-friendly products.
MISSION
Provide innovative solutions to the specific needs of its customers with
the advocacy of protecting BIODIVERSITY for the next younger
generation.
GOAL
To help improve our environment and ease the global warming by
providing our customers the right eco-friendly products that is
economically affordable, very effective and most of all simple
hassle-free technologies.
2
III. Products
ECO TIERRA consists of mixed cultures of beneficial and naturally
occurring microorganisms that can be applied as inoculants to increase
the microbial diversity of soils and plants.
RAPID GROW specially formulated 100% fish amino organic based foliar
fertilizer for all types of plants. Its usage has demonstrated 10-20%
increase in yield. Assists in increasing the number, size, flavor and quality
of the fruits and enhances the early maturity that helps in bringing the crop
early to the market.
AGRIMINERAL Organic Liquid Extract Fertilizer rooting power
locks, speed up the growth rate increases and the absorption of
nutrients, 20-40% increase photosynthesis, crop color, flavor, sugar
content improves both stronger pests. And pesticides and reduce
disinfection. Injury by continuous cropping to eliminate, allowing
continuous cropping.
BIO-GUARD PROBIOTIC ENZYME/NUBLEND Probiotic is a combination of
natural, live lactic acid-producing bacteria, yeast, enzymes, vitamins and
specialized proteins in the products that helps to ensure a healthy digestive
tract; enhancing the immune system and defending against pathogenic agents
in the digestive tract.
3
Products
AQUAMINERAL is a concentrated macro and micro mineral formulation
containing calcium, magnesium, potassium, sodium chloride and other
trace minerals. Aquamineral extract is a multi-mineral formulation to
enhance biomineralization processes in aquaculture ponds.
AQUACARE PROBIOTIC actively competes for nutrients in the water. The
bacteria used in aquacare probiotic's bioaugmentation processes are
selected specifically for their ability to degrade organic materials and nitrify
ammonia and because of the CFU counts (colony forming units) do so as
an accelerate.
EMP BIO-ORGANIC FERTILIZER is a complete organic fertilizer that
offers a solution to various soil fertility problems. It is composed of
pure and carefully selected organic based materials that are rich in
NPK and other essential elements needed for rapid and sustained
plant development and growth. These materials are treated with fast
reacting beneficial microbes and enzymes that are soil borne.
4
IV. ORGANIZATIONAL STRUCTURE
Owner
Secretary Liaison
Bione Enterprises is managed by the owner and assisted by her two employees,
secretary and liaison.
5
V. FINANCIAL STATEMENT ANALYSIS
a. Horizontal Analysis
BIONE Enterprises
Statement of Financial Position
% Change
ASSETS 2018 2017 2016 2018 2017
Current:
Cash and Cash Equivalents 3,516 241,025 29,325 -99% 722%
Accounts Receivable 0 75,680 0 -100% N/A
Merchandise Inventory 45,265 195,620 55,675 -77% 251%
Total Current Assets 48,781 512,325 85,000 -90% 503%
Non-current:
Property, Plant and Equipment-Net 415,250 185,904 126,700 123% 47%
Total Assets 464,031 698,229 211,700 -34% 230%
LIABILITIES
Current Liabilities 0 366,080 1,800 -100% 20238%
EQUITY
Jackie Lou S. Raposas, Capital, End 464,031 332,149 209,900 40% 58%
Total Liabilities and Equity 464,031 698,229 211,700 -34% 230%
The percentage of change in 2017 shows that the cash and cash equivalents
increases 8 times from its previous year and decreases by sixty times in the year . It
implies the company is more likely did not focus on reinvesting because of an excess
cash. The sudden decrease of cash in 2018 is the result from the acquisition of property,
plant and equipment in the same year.
As to accounts receivable, Bione Enterprise did its selling mostly in a cash basis
transaction. A receivable of P75, 680 is fully collected in the following year.
The merchandise inventory has its high stock on the year 2017 which may indicate
that the entity may have an inventory management problem during the year. The
company holds more of the inventories that losses the opportunity to generate it into
earnings and increases the handling cost for storage, but in 2018 the inventories were
sold higher than the previous year and generated more earnings. The cost of handling
such as insurance, utilities cost and rent also decreases due to this change.
The property, plant and equipment was increasing and it reflects that the
management have purchased an additional asset and also increases the amount for
depreciation. The acquisition of the PPE through a cash basis of payment which is
somehow not a strategic way of handling cash because it is better to buy an equipment
through credit , giving a chance for the cash to be used in assets that is fast generating in
terms of income such as inventories.
The current liabilities have a very significant change in 2017 that means a positive
impression that suppliers have entrusted the company the resources needed. It can
6
also be noticed that the liabilities were fully eliminated in 2018, which means the cash
was also utilized on company's obligations.
The owner's capital increases for three years and shows that the company have
generated more earnings, which also related to increase in cash. Indeed the company is
running efficiently considering it is in its starting phase.
Moreover, the 2018 statement of position says that the company might be at risk
because of too much investment in depreciable asset and leaving a very low level of
cash and inventories which implies a mismanagement of cash. It is recommended to
acquire a PPE that is financed by a bank through loan and utilize more of the cash to
highly liquid asset such as inventories.
BIONE ENTERPRISES
Statement of Financial Performance % Change
2018 2017 2016 2018 2017
Sales 310,000 196,000 268,217 58% -27%
Cost of Sales 201,500 11,680 95,217 1625% -88%
Gross Income 108,500 184,320 173,000 -41% 7%
Operating expenses 60,219 108,820 99,270 -45% 10%
Net income before tax 48,281 75,500 73,730 -36% 2%
Income tax expense - - 1,873 N/A -100%
Net income 48,281 75,500 71,857 -36% 5%
At a first glance, the sales for 2017 was decreased compared it last year, but there is
an increase in the net income. The amount of sales significantly decreased, but to offset
this pull down is the decrease in the cost of sales, which is favorable and supports the
reason for a higher profit in 2017. Despite of a lower sales in 2017, the gross income had
a positive increase of 7%, this is due to a high decrease in cost of sales contributing to an
overall profitability of the company.
The operating expenses, increase in 2017 which could imply that the company is
operating with a higher cost for the year, but still this has a little effect in the final net
income because of the increase in the gross income. While in the following year the
company operated with a lesser operating costs resulted in a positive impact on the net
income because the profit is still giving us a positive result within the year.
The 100% decrease in the income tax expense is very beneficial to the company as
it maintains the higher amount of the profit. Through the careful analysis, we could see
that the company performed well in 2017 in generating its income which is a good
impression on its owner.
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b. Profitability Ratios
- are metrics that assess a company's ability to generate income relative to its
revenue, operating costs, balance sheet assets, or shareholders' equity.
b.1. Return on Sales - is a ratio used to evaluate a company's operational efficiency.
This measure provides insight into how much profit is being produced per dollar of sales.
An increasing ROS indicates that a company is growing more efficiently, while a
decreasing ROS could signal impending financial troubles. ROS is very closely related to
a firm's operating profit margin.
39%
27% 16%
2016 2017 2018
In evaluation of BIONE's operational efficiency, the year 2017 has the highest
percentage in terms of generating profits from its sales. The decrease of ROS on 2018
indicates that there is an increase of sales while the cost and expenses is also
increasing.
To increase the return on sales ratio of Bione, the enterprise should aim to reduce
costs and expenses. It can also increase its selling price as long as not far higher than
the competitors. Bione may also consider negotiating with the current suppliers to lower
the cost or ask for discounts.
b.2. Gross Profit Rate - is a metric analysts use to assess a company's financial
health by calculating the amount of money left over from product sales after subtracting
the cost of goods sold (COGS). Sometimes referred to as the gross margin ratio, gross
profit margin is frequently expressed as a percentage of sales.
Gross Profit Rate
94%
65%
35%
2016 2017 2018
In terms of managing cost of sales and generating gross profit, Bione Enterprises did
its best in 2017 than in 2016 and 2018, which has a gross profit of P184, 320 or 94. 04%
of sales. It also shows that Bione has more to cover for its operating expenses. However,
in year 2018, the enterprise increases its cost of sales that led to the lowest gross profit
ratio among the years presented. Increasing the selling price without increasing the cost
of sale or increase the sales volume without increasing the cost of sale is recommended
for Bione.
8
b.3. Return on Equity - is a measure of financial performance calculated by
dividing net income by shareholders' equity. Because shareholders' equity is equal to a
company’s assets minus its debt, ROE is considered the return on net assets. ROE is
considered a measure of how effectively management is using a company’s assets to
create profits.
42%
28% 12%
2016 2017 2018
BIONE Enterprises has its highest return on equity in the year 2016 showing 42.
07%. From 2016 to 2018 the ROE is decreasing, but it does not mean that the enterprise
is not performing well. If BIONE wants to increase its return on equity, the enterprise will
need to increase its net income to generate more cash internally.
c. Liquidity Ratios
- are an important class of financial metrics used to determine a debtor's ability to
pay off current debt obligations without raising external capital. Liquidity ratios measure a
company's ability to pay debt obligations and its margin of safety through the calculation
of metrics including the current ratio, quick ratio, and operating cash flow ratio. Current
liabilities are analyzed in relation to liquid assets to evaluate the coverage of short-term
debts in an emergency.
c.1. Inventory Turnover - is a ratio that measures the number of times inventory is
sold or consumed in a given time period.
Inventory Turnover
1.71 1.67
0.09
2016 2017 2018
The data show that 2018 has a higher ratio compared to 2017 and interprets that the
company made adjustments in terms of managing its inventories from the previous year
(2017) where poor management such as deficiencies, or overstocking generated into
weak sales.
BIONE Enterprises must benchmark or foresee alternatives to reduce the storage
cost (inventory) yearly and reliably. If holding of stocks in storing is reduced, net income
and profitability would be increased eventually.
9
c.2. Inventory Days - The days sales of inventory (DSI) is a financial ratio that
indicates the average time in days that a company takes to turn its inventory, including
goods that are a work in progress, into sales.
4055.56
213.45 218.56
2016 2017 2018
During 2016, the inventory takes 213.45 only days to sell while in the year 2017, the
highest days to sell the inventory, with 4, 055.55 days. This is an indication that during
2017 BIONE's inventory management is weak because the conversion of inventory into
cash moves very slowly. Maintaining unnecessarily high level of inventory beyond what
is required to fill customer orders in a timely basis is an increase of cash outflow.
However, in 2018 the days to sell the inventory decreases to 218.56 days which
shows that the BIONE's cash flow is recovered in 2018.
c.3. Asset Turnover - is an efficiency ratio that measures a company’s ability to
generate sales from its assets by comparing net sales with average total assets. In other
words, this ratio shows how efficiently a company can use its assets to generate sales.
1.27
0.43 0.53
2016 2017 2018
Bione’s assets were used most efficiently during 2016. The decrease in 2017 and
2018 means that the enterprise is likely having management problem in terms of utilizing
its assets in order to generate a more favorable ratio in these years.
To improve the asset turnover ratio, Bione needs to increase its sales by quick
movements of its inventory and have a better inventory management.
10
c.4. Current Ratio - is a liquidity ratio that measures a company's ability to pay
short-term obligations or those due within one year. It tells investors and analysts how a
company can maximize the current assets on its balance sheet to satisfy its current debt
and other payables.
Current Ratio
47.22
1.4 0
2016 2017 2018
The cash ending in 2016 is P29,325, from this alone, Bione has really the ability to
pay its debt without moving its inventory into sales. But having a current ratio of 47.22
may imply that Bione is not using its current assets efficiently. This may also indicate
problems in with working capital management.
Unlike in 2017, though the result implies liquidity, all of its assets (cash, receivables
and inventory) needs to be utilized in repaying its debt in the said year. During 2018, no
obligation is incurred, therefore Bione is liquid.
c.5. Quick Asset Ratio - is an indicator of a company’s short-term liquidity position
and measures a company’s ability to meet its short-term obligations with its most liquid
assets. Since it indicates the company’s ability to instantly use its near-cash assets
(assets that can be converted quickly to cash) to pay down its current liabilities, it is also
called the acid test ratio. An acid test is a quick test designed to produce instant
results—hence, the name.
16.29
0.87 0
2016 2017 2018
Bione has sufficient cash in paying its debt during 2016. The enterprise should
consider investing the excess in a new product as an addition to its inventory and income
from its sale. In 2017, Bione is taking a risk in not maintaining its appropriate liquid
resources to leverage against the obligation. To improve the ratio, Bione should increase
its sales and inventory turnover and pay its liability as early as possible.
In 2018, though no obligation is obtained, existing quick assets may not be sufficient
in paying its debt, if any.
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d. Leverage Ratios
- is any one of several financial measurements that look at how much capital comes
in the form of debt (loans) or assesses the ability of a company to meet its financial
obligations. The leverage ratio category is important because companies rely on a
mixture of equity and debt to finance their operations, and knowing the amount of debt
held by a company is useful in evaluating whether it can pay off its debts as they come
due. Several common leverage ratios are discussed below.
d.1. Debt-to-Equity Ratio - is used to evaluate a company's financial leverage.
The D/E ratio is an important metric used in corporate finance. It is a measure of the
degree to which a company is financing its operations through debt versus wholly-owned
funds. More specifically, it reflects the ability of shareholder equity to cover all
outstanding debts in the event of a business downturn.
1.1
0.01 0
2016 2017 2018
Bione has a lower risk during 2016 because the enterprise is not fully utilizing the
source of finance (debt), while in 2017, more assets are financed by debt than those
financed by the owner of Bione. It means that the percentage of assets of Bione, which
are financed by the debts is increasing. No liabilities is acquired in 2018 which shows
that Bione is technically solvent.
d.2. Debt-to-Assets Ratio - is an indicator of a company's financial leverage. It tells
you the percentage of a company's total assets that were financed by creditors. In other
words, it is the total amount of a company's liabilities divided by the total amount of the
company's assets.
0.52
0.01 0
2016 2017 2018
Showing the financial position of Bione, the enterprise is being conservative in terms
of financing its assets. As presented above, in three consecutive years, Bione has a low
risk of repaying its obligation for its assets because these are mostly financed by its
owner’s capital. It also means that Bione is using equity financing rather than debt
financing.
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d.3. Equity Ratio - is a financial metric that measures the amount of leverage used
by a company. It uses investments in assets and the amount of equity to determine how
well a company manages its debts and funds its asset requirements.
0.99 1
0.48
2016 2017 2018
For the years 2016 and 2018, the level of capital of Bione is considered to be
favorable because the higher proportion of assets is owned by the owner. Bione also has
a better long-term solvency position.
On the other hand, during 2017, Bione is taking a high risk in generating returns from
its capital. It uses more borrowed capital as funding makes it a leverage enterprise.
d.4. Equity Multiplier - is a financial leverage ratio that measures the amount of a
firm’s assets that are financed by its shareholders by comparing total assets with total
shareholder’s equity. In other words, the equity multiplier shows the percentage of assets
that are financed or owed by the shareholders.
2.1
1.01 1
2016 2017 2018
As to asset financing, Bione is conservative since its assets on 2016 and 2018 is
fully financed through its owner’s capital.
However, on 2017 the ratio resulted in 2.10 times or 1 asset is funded through equity
and the other 1 funds through debt. It may imply a risk of insolvency, if happened there is
a loss in 2017, the chances of not meeting the financial obligations increase.
13
Overall Analysis in Bione’s Financial Statements
Bione’s financial statement for 2017 showed a good performance because this year
has the highest return on sales. The current ratio for the year 2018 is zero, which
indicates that all of the liabilities were paid. Technically, Bione’s FS is solvent and has a
good impression to its suppliers. The accounts receivable in the year 2018 were fully
collected which implies the movement of Bione’s receivables are less likely to have a
doubtful accounts due to 100% collectability. The operating expenses are well managed
because of its decreasing trend from the first year of operations.
Moreover, the year 2018 had a mismanagement of cash because of acquisition of
non-current assets on a cash basis. Ideally, a loan from a bank is recommended in
making that kind of purchase. This gives the opportunity for the cash to be used in
generating income through the purchase of inventories. The owner should focus the
investment in merchandise inventories because this generates income faster than
Property, Plant and Equipment.
14
VI. FINANCIAL FORECASTING
BIONE ENTERPRISES
Statement of Financial Performance
Forecasted
2018 2021
Sales growth rate
Sales 310,000 625,668
Cost of sales 201,500 218,984
Gross Inome 108,500 406,684
Operating expenses 60,219 231,497
Net income 48,281 175,187
BIONE ENTERPRISES
Statement of Financial Position
Forecasted
2018 2021
Current Assets 48,781 250,267
Noncurrent assets 415,250 275,600
Total Assets 464,031 525,867
Current Liabilities 0 112,620
Capital 464,031 413,247
Total Liabilities and Capital 464,031 525,867
15
Assumptions and Interpretation
The financial projection and forecasting procedure starts with the focus on the
understanding the specific long and short-term goals and needs of the company. In line
with the company’s vision, to be recognized as a successful marketing institution that
provides high quality affordable, effective and environmental-friendly products, Bione’s
forecasted financial statements for the year 2019, 2020 and 2021 were being created.
The following assumptions were made for the guidance in foreseeing the future
amounts in the financial statement. First, the growth rate of forecasted sales is computed
using simple moving averages with two periods of the interval. The average change in
sales in percentage is used. Second, there is no additional purchase of noncurrent
assets for the year 2019 and 2020. The property, plant and equipment is net of
accumulated depreciation. Third, the forecasted cost of sales, operating expenses, net
income, current and noncurrent assets and liabilities are based on the average of the
percentages in vertical analysis for three years then multiplied to the forecasted sales.
This concept shows that the growth of the sales has a significant effect of the
performance and position of the company. The company as per assessment to its
previous financial statements, has enough resources specifically in cash to sustain the
operations and continuously serve its customer, so the additional fund needed was not
computed.
The amounts reflected was based on the fair judgement and evaluation that the
other unforeseen factors that is beyond the researchers control like force majeure and
market related significant changes were not considered. These factors might significantly
change the assumptions and still subject for the owner’s final discretion.
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VII. References
https://www.investopedia.com/terms/p/profitabilityratios.asp
https://www.investopedia.com/terms/r/ros.asp
https://www.investopedia.com/terms/g/gross_profit_margin.asp
https://www.investopedia.com/terms/r/returnonequity.asp
https://www.investopedia.com/terms/l/liquidityratios.asp
https://www.tradegecko.com/inventory-management/inventory-turnover-formula
https://www.investopedia.com/terms/d/days-sales-inventory-dsi.asp
https://www.myaccountingcourse.com/financial-ratios/asset-turnover-ratio
https://www.investopedia.com/terms/c/currentratio.asp
https://www.investopedia.com/terms/q/quickratio.asp
https://www.investopedia.com/terms/d/debtequityratio.asp
https://www.accountingcoach.com/blog/debt-to-total-assets-ratio#:~:text=The%20debt%
20to%20total%20assets%20ratio%20is%20an%20indicator%20of,amount%20of%20the
%20company%27s%20assets.
https://www.investopedia.com/terms/l/leverageratio.asp#:~:text=are%20discussed%20b
elow.-,A%20leverage%20ratio%20is%20any%20one%20of%20several%20financial%2
0measurements,output%20will%20affect%20operating%20income.
https://corporatefinanceinstitute.com/resources/knowledge/finance/equity-ratio/
17
