Making Sense of Your Numbers
Financial ratios aren't just formulas on a spreadsheet. They're the story of where your business stands right now and where it could go next.
The Ratios That Actually Matter
We've worked with hundreds of Australian businesses over the past three years. And we've noticed something interesting: most business owners know these formulas exist, but they don't really know what the numbers are trying to tell them. Here's our take on what each one reveals about your operation.
Current Ratio
Current Assets ÷ Current LiabilitiesThis one's about breathing room. If you're sitting above 1.5, you've got cushion. Below 1.0 means you might be scrambling when bills come due. We've seen businesses with strong revenue still struggle because this number was off.
Debt-to-Equity
Total Debt ÷ Total EquityHow much you owe versus what you own. Lower numbers suggest you're building something sustainable. Higher numbers? You're borrowing heavily to grow. Neither is inherently bad, but context matters a lot here.
Gross Profit Margin
(Revenue - COGS) ÷ Revenue × 100What's left after you pay for the stuff you sell. This number varies wildly by industry. Retail might see 30%, consulting firms often hit 70%. The key is knowing what's normal for your sector and tracking whether you're improving.
Return on Assets
Net Income ÷ Total Assets × 100How efficiently you're using what you've got. If you've invested heavily in equipment or property, this ratio tells you whether those assets are actually earning their keep. We track this quarterly for most clients.
Working Capital Ratio
Current Assets - Current LiabilitiesThe actual dollar amount you have available to operate with. Some months this will be tight. Other months you'll have surplus. The pattern over time matters more than any single snapshot.
Inventory Turnover
COGS ÷ Average InventoryHow quickly you're moving stock. Higher usually means you're not tying up cash in products sitting on shelves. But too high might mean you're running out of popular items. There's a sweet spot somewhere in the middle.
What's Normal in Your Industry
Every sector has its own rhythm. What looks healthy for a manufacturing business would be concerning for a service company. Here's what we typically see across different Australian industries in 2025.
- Retail: Current ratios around 1.3 to 1.8, with inventory turnover between 4 and 8 times yearly. Margins tend to be thinner, usually 25-35%.
- Professional Services: Higher margins (60-75%) but lower asset bases. ROA often exceeds 15% because there's less equipment involved.
- Construction: Debt-to-equity can run higher (1.5 to 2.0) due to project financing. Working capital needs fluctuate significantly with project phases.
- Hospitality: Tight margins (8-15%) with high inventory turnover. Current ratios below 1.0 are common but manageable with steady cash flow.
- Manufacturing: More capital-intensive, so ROA tends lower (5-10%). Inventory turnover varies widely depending on production cycles.
When Numbers Tell You to Pivot
A retail client came to us mid-2024 with what looked like decent revenue growth. But their current ratio had dropped from 1.6 to 0.9 in six months. Inventory turnover was slowing down too.
The numbers were saying something important: they were growing too fast for their cash position. They'd taken on more stock than they could move, and suppliers wanted payment before customers were buying.
We helped them restructure their ordering system and negotiate better terms. By December 2024, their current ratio was back above 1.4, and they'd freed up about $180,000 in working capital that had been stuck in slow-moving inventory.
Who's Looking at Your Numbers
Our team has spent years working with businesses across Queensland and beyond. We don't just calculate ratios – we help you understand what they mean for your specific situation.
Henrik Lindström
Senior Financial Analyst
Spent twelve years working with mid-size manufacturers and retailers. Henrik's particularly good at spotting trends before they become problems. He's the one who'll notice when your inventory turnover starts slipping.
Callum Fitzwilliam
Business Advisory Specialist
Worked in banking before joining us in 2022. Callum understands what lenders and investors look for when they review your ratios. He's helped dozens of businesses prepare for funding rounds and loan applications.