Syllabus: SQA - Higher Course Spec Business Management
Module: Management of Finance
Lesson: Ratios

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Introduction

The SQA Higher Business Management course equips students with financial literacy that’s both practical and exam-relevant. In the “Management of Finance – Ratios” topic, learners gain a deeper understanding of how businesses measure financial performance. This content is part of the mandatory Higher curriculum, aligned with SQA’s course specifications, and supports the development of analytical and evaluative skills through real-world business finance scenarios.

This topic isn’t just about calculations. It’s about preparing students to understand what those numbers mean in the context of decision-making, profitability, and financial health. It’s also a strong crossover point for enterprise education and wider employability.

Key Concepts

Within the “Management of Finance – Ratios” section, students will be expected to understand and apply the following key syllabus areas:

  • Profitability Ratios:

    • Gross Profit Ratio: Measures gross profit as a percentage of sales revenue.

    • Profit for the Year Ratio: Assesses the final profitability after all expenses.

  • Liquidity Ratios:

    • Current Ratio: Shows the ability of a business to pay its short-term debts.

    • Acid Test Ratio: A stricter measure of liquidity, excluding inventory from current assets.

  • Efficiency Ratios (often used in extension activities or for comparison):

    • Rate of Inventory Turnover: How often stock is sold and replaced.

Students must not only know how to calculate these ratios but also explain what the results indicate and how they influence business decisions.

Real-World Relevance

Understanding financial ratios isn’t just for accountants. For instance, when a retailer like John Lewis announces its yearly profits, analysts and journalists immediately break those figures down using ratios to assess whether the business is becoming more or less efficient.

In a school-based example, you might use a simplified case study of a student-run tuck shop. If their gross profit ratio drops from 60% to 45% over a term, what might that indicate? Rising costs? Lower prices? This kind of thinking mirrors real business analysis.

You can also explore real company reports (like Tesco or BrewDog) and extract ratios from publicly available data. This helps students build skills in interpreting financial health beyond the textbook.

How It’s Assessed

In the SQA Higher Business Management exam, finance topics including ratios may appear in both Paper 1 (case study) and Paper 2 (structured questions).

Expect to see:

  • Calculation tasks (showing working is essential)

  • Interpretation questions (e.g. “Explain what this change in current ratio means for the business”)

  • Evaluation-style questions (e.g. “Assess the financial position of the business using the given ratios”)

Command words such as calculate, explain, analyse and evaluate are common. Marking rewards not just correct numbers, but meaningful insight into what the numbers imply.

Enterprise Skills Integration

Ratios offer a strong opportunity to link financial understanding to enterprise skills:

  • Problem-solving: What do the numbers reveal? What action should be taken?

  • Decision-making: Based on financial data, should the business cut costs or increase prices?

  • Numeracy in context: Ratios bring maths to life in a way that feels practical and purposeful.

Group challenges like “You’re the finance team – what would you advise your CEO based on this data?” get students thinking like business professionals, not just exam candidates.

Careers Links

This topic hits Gatsby Benchmarks 4 and 5 directly:

  • Financial roles: Accountant, financial analyst, auditor, small business owner.

  • Broader roles: Marketing and HR professionals also need to understand financial implications.

Invite a local business owner or finance manager to discuss how they monitor their business performance. Students begin to see how these “dry” numbers play a vital part in decisions that affect people’s jobs, customers, and futures.

You can also link this to personal finance: understanding liquidity isn’t far removed from managing a household budget.

Teaching Notes

Tips for delivery:

  • Start with student-friendly businesses (school canteen, lemonade stand).

  • Use real ratios from current brands they know (Spotify, Greggs).

  • Break calculations into steps with scaffolded worksheets before moving to interpretation.

Common pitfalls:

  • Students may memorise formulae without understanding what they’re measuring.

  • Confusing gross profit with net profit or current with acid test ratio.

  • Overfocus on calculation accuracy rather than explaining the meaning of results.

Extension ideas:

  • Get students to compare two businesses using their financial data.

  • Use spreadsheet tools for live ratio modelling.

  • Link with Business Management coursework or enterprise projects where students handle money and track outcomes.

 

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