Business Quantification and Implementation Notes
Business Quantification and Implementation
Business implementations drive activities to achieve business plan objectives.
Entrepreneurs ensure team alignment by understanding and overseeing business implementations.
A strategic plan provides direction, ensures goal attainment, delivers customer value, and achieves success.
Effective business implementation offers a competitive advantage.
Forecasting and Ratio Analysis
Forecasting involves using past and present data to predict future trends.
It helps businesses identify risks and opportunities and allocate resources efficiently.
Factors to Consider in Sales Forecasting
Competition: Adjust forecasts based on competitor performance; employ tactics like discounting or capture market share if a competitor exits.
Macroeconomics: Regional to global economic changes affect sales; selling is easier in a solid economy.
Events: National or global events, like the pandemic, can positively or negatively impact businesses.
Law: Changes in regulations or legal requirements can impact sales.
Season: Time of year impacts sales (e.g., ice cream shops in summer, toy stores around Christmas).
Employees: The number of salespeople directly impacts sales.
New businesses must factor in the time to set up sales pipelines and stakeholder relationships.
How to Create a Sales Forecast
Sales forecast estimates the number of goods and services a business can sell over time.
Includes the cost to produce and sell goods/services and the estimated profit.
Formulas:
Markup = Cost per unit x Desired Markup
Selling Price = Cost Per Unit x Markup Price
Projected Daily Revenue = Selling Price x Volume of Items Sold
Projected Items Sold Monthly = Items Sold Daily x 30 Days
Projected Monthly Revenue = Selling Price x Projected Items Sold Monthly
Projected Items Sold Annually = Items Sold Monthly x 365 Days
Projected Annual Revenue = Selling Price x Projected Items Sold Annually
Example: La Mirabella RTW Shop
Ms. Mira Bella launched an online boutique in January 2022.
Average daily sales: 20 summer dresses and 16 ripped jeans.
Summer dress cost: P83.00, Jeans cost: P215.00.
Markup: 50% on each item.
Items | A. Cost per Unit | B. Markup Price (A x .50) | C. Selling Price (A + B) | D. Items Sold (Daily) | E. Forecasted Revenue (Daily) (C x D) |
|---|---|---|---|---|---|
Summer Dress | P83.00 | P41.50 | P124.50 | 20 | P2,490.00 |
Ripped Jeans | P215.00 | P107.50 | P322.50 | 16 | P5,160.00 |
Total | P7,650.00 |
Table 1. Forecasted Daily Revenue of La MiraBella RTW Shop
Items | C. Selling Price (A + B) | D. Items Sold Daily | F. Projected Items Sold (Monthly) (D x 30 Days) | G. Forecasted Revenue (Monthly) (C x F) |
|---|---|---|---|---|
Summer Dress | P124.50 | 20 | 600 | P74,700.00 |
Ripped Jeans | P322.50 | 16 | 480 | P154,800.00 |
Total | P229,500.00 |
Table 2. Forecasted Monthly Revenue of La MiraBella RTW Shop
Items | C. Selling Price (A + B) | D. Items Sold Daily | H. Projected Items Sold (Annually) (D x 365 days) | I. Projected Revenue (Annually) (C x H) |
|---|---|---|---|---|
Summer Dress | P124.50 | 20 | 7,300 | P908,850.00 |
Ripped Jeans | P322.50 | 16 | 5,840 | P1,883,400.00 |
Total | P2,792,250.00 |
Table 3. Projected Annual Revenue of La MiraBella RTW Shop
Adjusted Monthly Revenue Sales Forecast Based on Assumed Factors:
February to May: +5% increase due to peak season
June: +10% increase due to the start of the school season
July to August: -2% decrease from the previous month
September to October: -9% decrease from the previous month
November: +6.5% increase due to the Christmas season
December: +14.7% increase due to the Christmas season
Operating Date (2022) | Increase/Decrease | Monthly Revenue |
|---|---|---|
January | P229,500.00 | |
February | + 5% | P344,250.00 |
March | + 5% | P361,462.50 |
April | + 5% | P379,535.63 |
May | + 5 % | P398,512.41 |
June | + 10% | P438,363.65 |
July | - 2% | P429,596.38 |
August | - 2% | P421,004.45 |
September | - 9% | P383,114.05 |
October | - 9% | P348,633.77 |
November | + 6.5% | P371,294.97 |
December | + 14.7% | P425,875.33 |
Table 4. Adjusted Monthly Revenue Sales Forecast Based on Assumed Factors
Ratio Analysis
Financial ratio compares two (2) numbers from a company's financial statements.
Used to evaluate the financial health of a company or organization.
A. Profitability Ratio
Assesses a company's profitability and ability to generate shareholder returns.
Return on Investments (ROI)
Also called Return on Equity (ROE).
Compares income or profit after taxes to total stockholder's equity.
Average asset is calculated by adding the beginning and ending balances of total assets and dividing by two.
Formula: Return on Investment = Net Income / (Average Assets / 2)
Example: Beginning total asset = P100,000, ending total asset = P25,000, net income = P30,000.
ROI = P30,000 / ((P100,000 + P25,000) / 2 )
ROI = P30,000 / P62,500
ROI = 0.48
Operating Income Ratio (OIR)
Shows the percentage of profit a company can generate from each peso of its investment.
Creditors prefer a higher ratio; a desirable interest coverage ratio is 4:1 or higher.
Decreasing ratio leads to a lower credit rating.
Formula: Operating Income Ratio = (Operating Expenses + Cost of goods sold) / Net Sales
Example: Apple: Net sales = $59.68 billion, Cost of goods sold = $37.00 billion, Operating expenses = $9.59 billion.
OIR = ($37.00 billion + $9.59 billion) / $59.68 billion
OIR = 0.78
Return on Assets (ROA)
Measures how well a company has used its assets.
Calculated by dividing operating income by the average total assets.
Formula: Return on Assets = Operating Income / Average Total Assets
Example: Net Income = $500,000, Total Assets = $2,500,000.
ROA = $500,000 / $2,500,000
ROA = 0.2
B. Financial Health Ratio
Determines the company’s capacity to pay its short-term and long-term obligations.
Stockholder's Ratio
Shows the firm's long-term financial stability.
Formula: Stockholder’s Ratio = Total Equity / Total Assets
Example: Total assets = 1,000,000, stockholders' equity = 800,000.
Stockholder Ratio = 800,000 / 1,000,000
Stockholder Ratio = 0.8
Debt Ratio
Compares a company's total debt to its assets.
Lower ratios indicate less debt and a stronger financial position.
Higher ratios indicate higher risk.
Formula: Debt Ratio = Total Liabilities / Total Assets
Example: Total debt = $500,000, total assets = $1,000,000.
Debt ratio = $500,000 / $1,000,000
Debt ratio = 0.5
Debt-to-Equity Ratio
Shows how much of a company's balance sheet is financed by suppliers, lenders, creditors, and obligors compared to shareholders' investment.
A lower percentage indicates less leverage and a stronger equity position.
Formula: Debt-to-Equity Ratio = Total Liabilities / Total Shareholder’s Equity
Example: Total debt = $1,500,000, total equity = $2,500,000.
Debt-Equity Ratio = $1,500,000 / $2,500,000
Debt-Equity Ratio = 0.6
C. Liquidity Ratio
Refers to the company’s ability to pay its short-term obligations or liabilities.
Quick Ratio (Acid-Test Ratio)
Measures a company's short-term liquidity and ability to meet obligations with liquid assets.
A ratio below one (1) doesn't imply bankruptcy.
A higher ratio indicates better liquidity, but too high may mean excessive cash reserves.
Formula: Quick Ratio = Quick Assets / Current Liabilities
Example: Cash = $50,000, Accounts Receivable = $30,000, Short-term investments = $10,000, Current liabilities = $40,000.
Quick assets = $50,000 + $30,000 + $10,000 / $40,000
Quick ratio = $90,000 / $40,000
Quick ratio = 2.25
Current Ratio
Shows a company's ability to pay short-term bills and debts.
Compares current assets to current liabilities.
A ratio of 2:1 means that the company has P2 worth of current assets for every peso of current liability.
A higher current ratio indicates better solvency and liquidity.
Formula: Current Ratio = Current Assets / Current Liabilities
Example: Current assets = $100,000, current liabilities = $50,000.
Current Ratio = $100,000 / $50,000
Current Ratio = 2
Value Chain Analysis (VCA) Model
Represents a firm's internal activities when transforming inputs into outputs.
Involves identifying primary and support activities to reduce costs or increase differentiation.
Applicable for both product and service businesses.
Primary Activities
Inbound logistics: Raw materials handling and warehousing.
Operations: Machining, assembling, and testing.
Outbound logistics: Warehousing and distribution of finished products.
Marketing and sales: Advertising, promotion, pricing, and channel relations.
Service: Installation, repair, and parts.
Secondary Activities
Firm infrastructure: General management, accounting, finance, and strategic planning.
Human resource management: Recruiting, training, and development.
Technology development: Research and development and product or process improvement.
Procurement: Purchasing raw materials, machines, and supplies.
Managing Human Resource
The People Strategy
Prioritized people plan that enables business success by attracting, developing, retaining, and inspiring the workforce.
Designed to inspire and achieve company-wide alignment on goals concerning the people.
The Eight (8) Rs of HR (Morato, 2016)
Recruiting: Finding and attracting potential resources for vacant positions.
Routing: Assessing potential to contribute to various functions and responsibilities.
Retaining: Holding on to people by giving just wages and work-life balance.
Resonating: Employees must embrace and internalize the company's goals to achieve these goals efficiently.
Reviewing: Measuring and evaluating performance with organizational goals in mind.
Rewarding: Compensating, giving incentives, and recognizing employees.
Retooling: Re-orienting employees to new directions and changing attitudes.
Recycling: Allows employees to change jobs or even careers.
Business Model Canvas (BMC)
Outlines a company's financial goals, customer base, value proposition, and financing.
Provides information about a company's target market, the market need, and the role of market offerings.
Consists of nine (9) components:
Customer Segment: Groups of people or organizations that an enterprise aims to reach and serve.
Customer Relationship: Relationships can be personal or automated, transactional or long-term.
Channels: Ways a company reaches out to specific customer groups.
Revenue Streams: Profit or loss of the business is the difference between the cost and the revenue streams.
Key Activities: Most crucial actions to run smoothly.
Key Resources: Necessary for each business model.
Key Partners: Relationships a business has with other people or organizations.
Cost Structure: Focus on innovation and developing a value proposition.
Value Proposition: Meets customers' needs or solves the customers' problems.
Business Permits and Licenses
Launching a business in the Philippines requires obtaining several business permits and licenses.
Bureau of Internal Revenue Tax Identification Number.
Required to acquire all the necessary permits and licenses for your business
Social Security System (SSS).
SSS Employer's Registration will ensure employees are covered with insurance benefits
Philippine Health Insurance Corporation (PhilHealth).
PhilHealth Employer’s Registration will cover their employees’ health insurance.
Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at Gobyerno (Pag-IBIG).
Pag-IBIG Employer's Registration will benefit employees who intend to apply for housing loans.
Barangay Clearance.
Certifies that your business complies with the requirements of the barangay where it is situated
Department of Trade and Industry (DTI).
Business Name Registration Certificate to use your trading name for any business-related operation
Mayor’s Permit/ Business Permit.
Ensures your business is safe under your city or town’s ordinance
Securities & Exchange Commission (SEC) Registration Certificate.
If your business falls under the corporation or partnership categories
Businesses with employees must secure government-mandated permits