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HSC Business Studies Finance Ratios

Key HSC Business Studies finance ratios, definitions, interpretations, and exam-use reminders in one clear reference.

These formulas are rendered as real mathematics rather than images. Read the definition, check every variable, and follow the topic link to see the idea in context. Always confirm the permitted official booklet or sheet for your examination session.

Reference section

F · Finance — Profitability Ratios

Gross profit ratio

Gross Profit Ratio=Gross ProfitNet Sales×100\text{Gross Profit Ratio} = \frac{\text{Gross Profit}}{\text{Net Sales}} \times 100

Measures the profit left after cost of goods sold, as a % of sales — reflects pricing and purchasing efficiency.

Gross Profit\text{Gross Profit}
Net sales − cost of goods sold
Net Sales\text{Net Sales}
total sales revenue, less returns/allowances

Net profit ratio

Net Profit Ratio=Net ProfitNet Sales×100\text{Net Profit Ratio} = \frac{\text{Net Profit}}{\text{Net Sales}} \times 100

Measures the profit left after ALL expenses (not just cost of goods sold), as a % of sales — reflects overall operating efficiency.

Net Profit\text{Net Profit}
gross profit − all other expenses
Net Sales\text{Net Sales}
total sales revenue, less returns/allowances

Return on equity

Return on Equity=Net ProfitOwners Equity×100\text{Return on Equity} = \frac{\text{Net Profit}}{\text{Owners Equity}} \times 100

Measures how efficiently the business uses the owners'/shareholders' own investment to generate profit.

Owners Equity\text{Owners Equity}
total assets − total liabilities

Expense ratio

Expense Ratio=Total ExpensesNet Sales×100\text{Expense Ratio} = \frac{\text{Total Expenses}}{\text{Net Sales}} \times 100

A lower expense ratio generally indicates tighter cost control relative to sales revenue.

Reference section

F · Finance — Liquidity Ratios

Current ratio (working capital ratio)

Current Ratio=Current AssetsCurrent Liabilities\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}

Tests whether a business can meet its short-term (within 12 months) debts. Usually expressed as "x : 1" — a ratio below 1:1 signals a liquidity risk.

Current Assets\text{Current Assets}
cash and assets convertible to cash within 12 months
Current Liabilities\text{Current Liabilities}
debts due within 12 months

Quick (acid test) ratio

Quick Ratio=Current Assets−InventoryCurrent Liabilities\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}

A stricter liquidity test than the current ratio — excludes inventory, which is the current asset slowest and least certain to convert to cash.

Reference section

G · Human Resources

Labour turnover rate

Labour Turnover=Number of SeparationsAverage Number of Employees×100\text{Labour Turnover} = \frac{\text{Number of Separations}}{\text{Average Number of Employees}} \times 100

A high rate can signal poor HR practices (pay, culture, management) and drives up recruitment/training costs; some turnover is healthy for bringing in new skills.

Separations\text{Separations}
employees who left in the period (resignation, retrenchment, dismissal, retirement)

Reviewed by the Study to Learn editorial team · Updated 2026-07-24