Business Management Assignment 1

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

Student No:223045835
Question 1:
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 2022
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
Question 2:
Introduction
The Covid-19(Coronavirus) pandemic has brought about unique challenges for businesses
worldwide, for small businesses. The sudden shift in the business environment and the
subsequent economic downturn have necessitated a review of financial management
strategies, particularly for small businesses. Financial management is the art and science of
obtaining enough finance for a business at the lowest cost, investing in assets earning a
return greater than the cost of capital, and managing the profitability, liquidity, and solvency of
the business (Marx, J. & De Swardt, C.J. 2014.).
Challenges that small businesses had to face mostly during the Covid times are mostly cash
flow management. Businesses had to firmly keep under surveillance their cash inflows and
outflows, reduce expenses, explore government support programs communicate with
stakeholders, review, and reform their budget above all these businesses had to maintain the
workers and their salaries. This essay will delve into the financial performance of SkyBlue
Enterprises during this period, focusing on liquidity, profitability, and solvency ratios. It will
also supply recommendations for effective working capital management and discuss non-
financial indicators that could improve the company’s overall performance.
SkyBlue Enterprise’s performance based on the following ratios:
Liquidity Ratio
Liquidity ratios provide an indication of the ability of a business to meet its short-term
obligations as they become due without curtailing or ceasing its normal activities (Marx, J. &
De Swardt, C.J. 2014.).Liquidity ratios includes two ratios which are important, current ratios
and acid-test ratios/quick ratios. SkyBlue’s current ratio has increased from 2.68 in 2020 to
3.54 on 2022.This stipulates that SkyBlue is improving in liquidity and has the ability to cover
short-term liabilities with its short-term assets.
Profitability Ratios
Profitability Ratios is a ratio that aims to determine the company's ability in generating profit
over a certain period and also provides an overview of the level of management effectiveness
in carrying out its operations (Miranshah, G. G., Demo, S. R. S.., & Sutisna. 2021.). They
include margins (such as gross profit margin), return on assets, and return on equity. In this
case we will only calculate the Gros profit margin and the Net profit margin. SkyBlue’s gross
profit margin decreased from 44% in 2020 to 40% in 2022. Then the net profit margin for
SkyBlue has fluctuated during these three years, it decreased from 14,4% in 2020, then
increased to 14,82% in 2021, and then it decreased again in 2022 to 12,33%.From the data
above, we can see that Sky Blue’s gross profit has remained constant at 120,000 in 2021 and
2022, despite an increase in sales revenue. This could indicate that the company’s cost of
goods sold has also increased, reducing the benefit of increased sales. For the net profit
margin this could mean that there are numerous factors affecting the company’s profitability.
Solvency Ratios
Solvency Ratios indicate the ability of a business to repay its debts from the sale of the
assets on cessation of its activities (Marx, J. & De Swardt, C.J. 2014.). From the provided
data, we can see that Sky Blue’s total liabilities have been decreasing each year while its
total assets have been increasing. SkyBlue’s debt ratio has decreased from 46,90% in 2020
to 30,69% in 2022. This indicates that SkyBlue’s solvency is improving, as the company is
becoming less reliant on debt to finance its assets.
Recommendations for effective working capital management.
Improve Collection of Accounts Receivable:

Receivables represent unpaid credit extended to customers by the business (Aminu &
Zainudin, 2015). The accounts receivable has been increasing over the years. This could
indicate that customers are taking longer to pay their debts. SkyBlue could implement stricter
credit policies to ensure faster collection of receivables and they should also reflect on the
credit rating of a customer before permitting credit to avoid bad debts.
Inventory Management
Inventory relates to goods or other items owned by a firm for sale or for processing before
being sold, as part of a firm's operations (Maysami, 2009). Ross et al. (2008). The inventory
has also been increasing each year. While having more inventories might mean that SkyBlue
is ready to meet demand, it also ties up capital that could be used elsewhere. SkyBlue could
investigate improving its inventory turnover rate.
Increase Sales Revenue

Revenue is the money produced from normal business operations, calculated as the
average sales price times the number of units sold (Adam Hayes, Ph.D., CFA,).
While the sales revenue has been increasing, the net income has not seen a significant
increase. This could indicate that the cost of goods sold, and operating expenses are also
increasing. SkyBlue could investigate ways to increase sales revenue while keeping costs
under control. SkyBlue could also increase sales revenue by improving operational efficiency
which could reduce costs, which could increase the net income.
Negotiate Better Credit Terms with Suppliers

Payables in one aspect of working capital management that companies can take advantage
of that they often have greater control over. The accounts payable has been increasing over
the years. While this means that SkyBlue is taking advantage of credit offered by suppliers, it
might be beneficial to negotiate better credit terms.
Reduce Reliance on Debt

The most analytical step a company can take to lessen its debt-to-capital ratio is that of
increasing sales revenues with assurance profits (Alicia Tuovila on Investopedia). This
can be achieved by increasing prices, increasing sales, or lessening costs. Although the
long-term debt has been decreasing, SkyBlue could investigate further reducing its reliance
on debt to finance its operations.
Aspects to improve overall performance

Customer Satisfaction
SkyBlue can gauge how happy their customers are with their products or services. This
can be done through methods like surveys or feedback forms. Satisfied customers often
lead to repeat business and referrals.
Employee Engagement
The level of commitment and involvement an employee has towards their organization
directly impacts a company’s success. Engaged employees are more productive and
contribute to a positive work environment.
Operational Efficiency
This refers to the effectiveness of business operations. It is about doing things right, in an
optimal way. This can be measured by looking at the time taken to complete tasks, the quality
of work produced, and the level of customer service provided.
Company Culture
A strong, positive company culture can lead to increased employee satisfaction and
productivity. This can be assessed through employee feedback and observation.
Public Engagement
How well the company engages with the public and its customers can also affect its success.
This can be measured through social media engagement, press coverage, and community
involvement.
Product Quality
The quality of the products or services offered by the company can affect its reputation and
customer satisfaction. This can be measured through customer reviews and feedback.
Innovation Quotient
This measures the company’s ability to innovate and adapt to changes in the market. It can
be assessed by looking at the number of new products or services launched, improvements
made to existing offerings, and the company’s response to market trends.
Conclusion

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Business Management

Submission date: 03 October 2023

Name: SPHESIHLE MKHIZE

Balance Sheet (in R)

Income Statement (in R)

SkyBlue Enterprise’s performance based on the following ratios:

Recommendations for effective working capital management.

Improve Collection of Accounts Receivable:

Increase Sales Revenue

Negotiate Better Credit Terms with Suppliers

Reduce Reliance on Debt

Aspects to improve overall performance

lead to repeat business and referrals.

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