Business Administration Department, School of Business, Hospitality, and Tourism Management, Divine Word College of Calapan, Inc., Oriental Mindoro, Philippines.
World Journal of Advanced Research and Reviews, 2026, 29(03), 064–076
Article DOI: 10.30574/wjarr.2026.29.3.0502
Received on 15 January 2026; revised on 01 March 2026; accepted on 02 March 2026
Small and medium enterprises (SMES) worldwide have experienced financial distress marked not only by declining revenues but also by increasing difficulty in securing capital and repaying loans. Financial distress remains a critical concern for them, as it affects business sustainability, job creation, and local economic development. This study examined the relationship between financial ratios, including liquidity, leverage, and profitability, with financial distress. It aimed to identify the key financial factors influencing the likelihood of financial distress among SMEs. A descriptive-correlational quantitative research design was employed, using primary data collected through structured questionnaires administered to 74 selected SME owners in Calapan City. The reliability of the research instrument was established using appropriate statistical techniques. The findings reveal a weak positive relationship between profitability and financial distress, indicating that despite profitability efforts by small and medium enterprises, they can still experience distress due to external factors. On the contrary, the SMEs' performance in managing their liquidity is strong, especially in cash flow and financial performance management. Companies' leverage is within acceptable levels, indicating a sound credit structure with appropriate debt-to-equity ratios. The study offers practical implications for SME owners, financial institutions, and policymakers by emphasizing the importance of sound financial management, prudent use of debt, and targeted support programs to enhance SME resilience. The findings contribute to the existing literature on SME financial sustainability and offer insights for developing early warning systems and intervention strategies to prevent financial distress among SMEs in Calapan City.
Financial Distress; Liquidity Ratio; SMES; Profitability; Liquidity; Leverage
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Danielle Dave Abas Despuez, Jayannah Samantha Gozar Dimaculangan, Maribel Mendoza Herrera, Jericho Frayre Kaw, Russell Villena Villarma and Abraim Castillo Zulueta. Determinants of financial distress among Small and Medium Enterprises (SMEs) in Calapan City, Oriental Mindoro. World Journal of Advanced Research and Reviews, 2026, 29(3), 064-076. Article DOI: https://doi.org/10.30574/wjarr.2026.29.3.0502