Prepare the following based on this topic: Inflation and Juan Dela Cruz.

Statement of the Problem

1. What is the profile of the Juan Dela Cruz business Affiliates in terms of the following:
1.1 Type of business activities
1.2 Number of years in Business
1.3 Type of ownership
2. How does inflation affects the financial status of Juan Dela Cruz Businesses in terms
of the following category:
2.1 Working Capital
2.2 Financial Profitability
2.3 Return on Assets
2.4 Return in Investment
3. What are challenges encountered by Juan Dela Cruz Businesses due to inflation?
4. What are the coping strategies applied by Juan Dela Cruz businesses to ease its
financial condition in effect of the inflation?

2.       Conceptual Framework

1. What is the profile of the Juan Dela

Cruz business Affiliates in terms of the
following:

1.1 Type of business activities

1.2 Number of years in Business
1.3 Type of ownership

2. How does inflation affects the financial

status of Juan Dela Cruz Businesses in
terms of the following category:

2.1 Working Capital

2.2 Financial Profitability
2.3 Return on Assets
2.4 Return in Investment

3. What are challenges encountered by Juan

Dela Cruz Businesses due to inflation?
 4. What are the coping strategies applied by
Juan Dela Cruz businesses to ease its
financial condition in effect of the inflation?

Review of Related Literature and Studies

Inflation

One Major issue that our economy is now facing is the constant inflation of gasoline
prices. While this economic issue has always existed throughout the word, it is increasingly
becoming more and more problem. According to The Philippine Statistics Authority reported
today that the country’s headline inflation rate marginally slowed down to 8.6 percent in
February 2023 from 8.7 percent in January 2023, as price increases of certain food commodities
and energy eased. According to Katarina Kramarova1(2018), Inflation means rising prices.
However, that is where the clarity about inflation usually ends. While those "rising prices" are a
national average, the way inflation affects an individual business depends on its unique economic
circumstances: what industry it's in, how its particular costs are rising (or falling), the
productivity of its workforce, the nature of its supply chain, the level and type of its debt (if any)
and so on. As a result, generalized inflation advice for small businesses can seem confusing and
contradictory. “We must rethink our strategies to combat rising food prices. The country’s
current high inflation is largely driven by domestic, supply-side constraints. Agricultural imports
were ill-timed and food supplies have been inadequate. The solution is to get to the root of the
problem, including fixing the bottlenecks along all segments of the agricultural value chain,”
said NEDA Secretary Arsenio M. Balisacan.

As price increases have accelerated in a number of countries in the past few years, there
has been active discussion of imported inflation in open economies. The primary objective of the
financial statements, generally financial reporting respectively, is to provide reliable and relevant
economic and financial information on economic entities. The information is useful and mostly
importantly necessary for. economic decision-making of shareholders, external providers of
capital, business partners, state institutions including mainly tax authorities and rule makers,
professional public, and other stakeholders in making investment or credit decisions, business
decisions or other similar resource allocation decisions etc. Providing high quality and useful
accounting information is a prerequisite for the efficiency of the company (Zamel et al., 2020)
and all the company´s stakeholders Kliestik et al., (2020), Svabova et al., (2020) Mazanec &
Bartosova, 2021).
 However, it may be the case that, despite the effort to present a true and fair view of
events that occur in the company, financial statements are unable to provide relevant information
due to inflation if inflationary “pressures” are not reflected in the financial statement data. The
accounting financial reporting regime is mostly nominal, which assumes no changes to the
purchasing power of money over time (Zamel et al., 2020). Inflation, the systematic decrease in
purchasing power and destroyer of wealth, is a rudimentary fact that creates serious financial
reporting and financial management problems. If prices are unstable, financial reports can
become extremely unsatisfactory and misleading (Bello, 2017) and thus using the right method
of accounting is crucial for decision-making purposes of the company Mbambo et al., (2020),
Ebiaghan, (2019).

If we consider the trend in price development today (mainly as the response to the global
COVID-19 crisis), it is a similar situation as in the 70s of the 20. century, when the issue of
inflation accounting came to the fore for the first time and began to be addressed by the
professional public. The main challenge today is therefore whether the financial statements in
economically developed countries should not “reflect” the inflation situation in the national
economy, even though the rate of such inflation is not as significant as, for example, in
hyperinflationary economies.

Financial

Inflation is top of mind for many business leaders, and with good reason: Maintaining
cash flow during inflationary periods can be a complex undertaking. Cash flow is king for
businesses, says Bryan W. Ford, Head of Corporate Sales and Treasury Management at Regions
Bank (2019). Noting that many businesses he works with are facing compressed profit margins
as a result of inflation. With the current inflationary period expected to persist longer than
initially anticipated due to ongoing supply chain disruptions, geopolitical events, and other
factors, now is a valuable time for business leaders to evaluate their approach to cash flow
management.

To help deal with increased prices, some businesses have begun making early buys or
bulk purchases of raw materials or inventory. While this approach may help reduce costs long
term, it’s important to carefully evaluate the short-term impact this approach may have on your
liquidity. The additional cash out the door for raw materials does have an impact on cash flow,
so businesses will need to determine if they are prepared longer term. Maintaining a diversity of
suppliers is another good hedge that businesses should consider as they’re looking to stay
proactive during a period of high inflation. “If a business is utilizing a single supplier and that
supplier starts to have cash flow issues of its own, it could have a downstream effect,” Ford
[Link], overreliance on a single supplier or geographic region can also increase the risk of
disruption due to supply chain issues — a lesson learned by many during the early days of the
pandemic.

Typically, investors buy fixed income securities such as corporate or municipal bonds,
treasuries and CDs because they want a stable income stream in the form of interest payments.
However, since the rate of interest remains the same on most fixed income securities until
maturity, the purchasing power of the interest payments declines as inflation rises. As a result,
bond prices tend to fall when inflation is increasing Mohammand (2020).

One explanation is that most bonds make fixed interest, or coupon payments. Rising inflation
erodes the purchasing power of a bond’s future (fixed) coupon income, reducing the present
value of its future fixed cash flows. Accelerating inflation is even more detrimental to longer-
term bonds, given the cumulative impact of lower purchasing power for cash flows received far
in the future.

ASSETS 

According to U.S Bank (2020) Real assets, such as commodities and real estate, tend to
have a positive relationship with inflation, according to analysis performed by the U.S. Bank
Asset Management [Link] have historically been a reliable way to position for
rising inflation. Inflation is measured by tracking the price of goods and services which often
contain commodities directly, as well as products closely related to commodities. Energy-related
commodities like oil have a particularly strong relationship with inflation. Industrial and precious
metals also tend to rise when inflation is [Link] it comes to real estate, property
owners can often increase rent payments when prices of goods and services are rising, which can
flow through to profits and investor distributions.

Mall businesses today are looking closely at expenses as they navigate higher inflation,
supply chain shortages, and labor issues. According to a 2021 [Link] survey, 89% of small
business owners have increased prices since the start of the pandemic. Of those surveyed, 45%
raised prices by more than 20% in 2021 and 46% are planning on reducing their inventory in
2022 to combat inflation. Here are a few ways inflation may impact your business’s cash.