RS Company is engaged in trading of twinning garments for parents and children. The company opened its first store in Cebu City in 2015. Because of its initial success, the owners decided to branch out to Davao City in 2020. As the business was growing, some concerns begin to show up. The owners do not have accounting background and they need help in analyzing their financial statements. Shown below are the 2021 financial statements of RS Company’s two stores. Davao Branch Cebu Branch Year’s Statement of Income: Sales 4,300,000 3,000,000 Costs and Expenses: Cost of Sales 2,800,000 1,400,000 S&A Expenses 483,000 697,000 Interest Expense 100,000 200,000 Income Tax 275,000 211,000 Total 3,658,000 2,508,000 Profit 642,000 492,000 Year-end Statement of Financial Position: Cash and Cash Equivalents 300,000 150,000 Accounts Receivable, net 500,000 300,000 Merchandise Inventory 1,200,000 750,000 Property, Plant & Equipment, net 4,000,000 4,800,000 Total 6,000,000 6,000,000 Accounts Payable 750,000 259,000 Income Tax Payable 250,000 241,000 Mortgage Payable (10%) 1,000,000 2,000,000 Common Stock 2,000,000 2,000,000 Retained Earnings 2,000,000 1,500,000 Total 6,000,000 6,000,000 Assume that the balances in asset and equity accounts at year-end approximate the average balances during the period. The income tax rate is 30 percent. 

Using appropriate financial ratios, determine which branch is better in terms of (a) profitability, (b) liquidity, and (c) stability. Based on the computed ratios, compare the overall financial health of the two branches. 

How can the stores’ financial health be improved?

Answer rating: 100% (QA)

a Profitability Ratio Gross Profit Margin Sales Cost of Sales Sales Davao Branch 4300000 2800000 430... View the full answer