Your Financial Ratio Questions Answered
We get questions every day about liquidity ratios, debt metrics, and profitability calculations. Here's what Australian business owners and students actually want to know in 2025.
Angus Pemberton
Ratio Analysis LeadSpent twelve years explaining debt-to-equity ratios to business owners who thought they were doing fine. Turns out, numbers tell different stories.
Siobhan Vickery
Profitability EducatorStarted teaching gross margin calculations after watching too many cafes fail. The maths matters more than people think it does.
Tamsin Eldridge
Liquidity ConsultantBeen tracking current ratios since 2018. Most businesses don't look at these until something goes sideways with cash flow.
Common Questions About Financial Ratios
These come up in nearly every session we run. Some are basic. Some get into the weeds. All of them matter when you're trying to understand how a business actually works.
What's the difference between current ratio and quick ratio?
Current ratio includes inventory. Quick ratio doesn't. If you're sitting on stock that won't move for months, the quick ratio gives you a clearer picture of actual liquidity. Both matter, but for different reasons.
Why does debt-to-equity ratio vary so much by industry?
Capital-intensive businesses need more debt. A manufacturing operation might run at 2:1 and that's normal. A consulting firm at that level would raise eyebrows. Context changes everything with this one.
How often should I calculate these ratios?
Monthly at minimum for active businesses. Quarterly if you're stable. Annually doesn't cut it anymore because things shift too fast. Your accountant can automate most of this with decent software.
Is ROE more important than ROA?
Depends who's asking. Investors care about ROE because it shows returns on their money. Management should watch both because ROA reveals operational efficiency regardless of financing structure.
What's a healthy gross profit margin?
There isn't one universal answer. Retail might be happy with 30%. Software companies expect 70% or higher. Compare yourself to direct competitors, not to businesses in different sectors.
Can ratios predict business failure?
Not on their own, but declining liquidity ratios combined with rising debt levels usually signal trouble ahead. We've seen it enough times to know the pattern, though timing varies wildly.
Understanding Ratios in Real Business Context
Most textbooks present financial ratios as isolated formulas. That's not how they work in practice.
A client came to us last year with what looked like solid profitability ratios. Net margin was decent. ROE looked fine on paper. But when we dug into the cash conversion cycle, the business was bleeding working capital.
The ratios weren't wrong. The interpretation was incomplete. You need to look at multiple metrics together, understand the timing of cash flows, and compare trends over periods rather than snapshots.
That's what we focus on in our workshops scheduled for October 2025 onwards—connecting these numbers to actual business decisions and operational reality.
Learning Ratios With Other Business Minds
Financial ratio analysis makes more sense when you're working through examples with people facing similar challenges.
Our group sessions bring together business owners, accounting students, and finance professionals who need to understand these metrics properly. Not just memorize formulas, but actually apply them.
Participants bring their own scenarios. We work through calculations together. Someone always asks the question everyone else was thinking. And you leave understanding not just how to calculate a debt service coverage ratio, but when it actually matters and what to do when the number isn't what you hoped.
Sessions run from September 2025 through early 2026 at our Castle Hill location. Small groups only because this stuff needs proper attention.
Still Have Questions About Financial Ratios?
We're based in Castle Hill and happy to chat about specific ratio questions or upcoming workshop dates. No pressure, just straightforward information about what we offer and whether it fits what you need.
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