HSC Business Studies 2025

Question 1 (5 marks): Kestrel Fitness Supplies is an Australian wholesaler of gym equipment. Use the data below to calculate the 2025 expense ratio, debt to equity ratio and return on equity, then assess the business's financial performance.

Step 1: Expense ratio (efficiency)

This is down from 30% and below the industry's 28%, so each dollar of sales now carries 25 cents of expenses. Expense control has improved.

Step 2: Debt to equity ratio (solvency)

Gearing has risen from $0.5$ to $0.8$ and is now above the industry's $0.6$. The business relies more on borrowed funds, so it carries higher interest commitments and greater risk if sales fall.

Step 3: Return on equity (profitability)

ROE has risen from $11.25\%$ and is above the industry's $14\%$, so owners are earning a better return on their investment.

Step 4: Assessment

A strong answer makes a judgement using comparisons across time and against the industry. Efficiency and profitability are both better than last year and better than the industry. Part of the higher ROE, though, comes from using more debt and a smaller equity base, which is a trade-off: higher returns but weaker solvency. Kestrel should watch its gearing, for example by funding the next expansion with retained profits or new equity rather than further loans.

Final answer: Expense ratio $25\%$, debt to equity $0.8 : 1$, ROE $17.6\%$. Performance is strong on efficiency and profitability (both better than 2024 and the industry), but solvency has weakened because gearing is now above the industry average, so the business should limit further borrowing.

Question 2 (4 marks): Juniper Florals has an opening cash balance of $6000 on 1 January. Its forecast cash inflows for January to April are $14 000, $11 000, $9000 and $16 000, and its cash outflows are $12 000, $15 000, $14 000 and $10 000. (a) Calculate the closing balance for each month. (b) Identify when the business needs a cash flow management strategy and explain TWO suitable strategies.

Step 1: Closing balances

Closing balance = opening balance + cash in - cash out, and each closing balance becomes the next month's opening balance.

Step 2: When to act

The balance falls sharply in February (outflows exceed inflows by $4000) and turns negative in March. Strategies need to be in place by February so the March shortfall never happens; March is when the problem shows, February is when the warning signs appear.

Step 3: Two strategies

1. Distribution of payments. Juniper could negotiate with its wholesale flower supplier to move part of the March payment into April, when inflows are strongest. Spreading large outflows across the period keeps the balance positive without borrowing.
2. Factoring. Juniper could sell $8000 of accounts receivable (for example, invoices owed by corporate clients) to a factoring company at a 5% discount:

This gives immediate cash to cover March, at a cost of $400, which is cheaper and faster than arranging a loan for a one-month gap. Discounts for early payment offered to customers would work in a similar way.

Final answer: Closing balances are $8000 (Jan), $4000 (Feb), a deficit of $1000 (Mar) and $5000 (Apr). The business should act in February to prevent the March deficit, using strategies such as redistributing supplier payments into April and factoring $8000 of receivables for $7600 of immediate cash.

Question 3 (4 marks): Coastal Brew Equipment, an Australian importer, orders a coffee roasting machine from a US manufacturer for USD 50 000, payable in 90 days. When the order is placed, AUD 1 = USD 0.66. By the payment date, AUD 1 = USD 0.62. Calculate the effect of the exchange-rate movement on the business and explain how hedging could have reduced this risk.

Step 1: Cost at the time of ordering

To convert US dollars to Australian dollars, divide by the number of US dollars one Australian dollar buys.

Step 2: Cost at the payment date

Step 3: Effect

The Australian dollar depreciated, so each Australian dollar buys fewer US dollars and the same invoice costs about $4888 (AUD) more. This lowers profitability (higher cost of the asset and less cash left over) and puts pressure on liquidity when the bill falls due.

Step 4: Hedging

Hedging reduces the risk of losses from currency movements. Using a derivative such as a forward exchange contract, Coastal Brew could lock in a rate at the time of ordering, say AUD 1 = USD 0.65, for settlement in 90 days:

That fixes the cost in advance and saves about $\$80\,645 - \$76\,923 = \$3722$ (AUD) compared with paying at the spot rate. The limitation is that if the dollar had appreciated instead, the business would still be bound to the contract rate and would miss the gain, and the bank builds a margin or fee into the contract rate.

Final answer: The depreciation raises the cost from about $75 758 to about $80 645 (AUD), an extra $4888 or so. A forward exchange contract at 0.65 would have fixed the cost at about $76 923, protecting profit and cash planning at the price of giving up any gain if the dollar had risen.

Question 4 (4 marks): Saltbush Skincare makes natural skincare products in regional Victoria and packs and ships about 20 000 online orders a year itself, at a cost of $6.40 per order. A third-party logistics (3PL) company offers to store the finished stock and pick, pack and deliver every order for $5.10 per order. Discuss the implications for Saltbush's operations of outsourcing its logistics.

A "discuss" answer needs both sides (benefits and drawbacks) linked to this business, ideally ending with a judgement.

Step 1: Quantify the cost effect

Step 2: Benefits

• Cost and focus. Beyond the $26 000 saving, Saltbush no longer needs warehouse space and packing staff, and can concentrate on its core activity: formulating and producing quality skincare.
• Speed and flexibility. A 3PL with national networks and automated picking can deliver faster and can scale up for peak periods (such as the lead-up to Christmas) without Saltbush hiring casual staff.

Step 3: Drawbacks

• Loss of control over quality and the customer experience. Damaged or late parcels will be blamed on Saltbush, not the 3PL, which could hurt its brand.
• Dependence and change management. Saltbush relies on the 3PL's reliability and contract terms, and current packing staff may face redeployment or redundancy, which needs careful handling.

Step 4: Judgement

Outsourcing suits Saltbush if the contract includes service standards (for example delivery times and damage rates) that it monitors, so it keeps the savings while protecting quality.

Final answer: Outsourcing would save about $26 000 a year and improve speed and flexibility while letting Saltbush focus on production, but it reduces control over delivery quality and the customer experience, so it is worthwhile only with clear, monitored service standards in the 3PL contract.

Question 5 (20 marks, business report plan): Ironbark Joinery Pty Ltd makes timber kitchen cabinets in Newcastle. Demand has grown and orders are being delivered late. The owner plans to add a second (evening) shift and install an imported computer-controlled (CNC) cutting machine, and wants production at full capacity within 10 weeks. The owner's draft schedule is below. As a consultant, write a business report that: outlines ONE human resource management process the business should use; analyses the schedule and identifies any problems; and recommends operations strategies to improve quality and speed.

This is a plan with the key calculation, not a full script. Use business report format throughout.

Step 1: Report format

Title, To/From/Date, Executive summary, Introduction (purpose and scope), body sections with headings and brief points or short paragraphs, Recommendations, Conclusion. The executive summary states the key finding up front: the 10-week target cannot be met as scheduled.

Step 2: Human resource process (acquisition)

Outline acquisition: workforce planning (how many evening-shift workers and which skills), recruitment (an internal expression of interest for current staff wanting extra hours, plus external advertising for CNC-capable workers), selection (interviews, practical skills test, reference checks), and induction on safety procedures for night work. Link it to the business: without enough skilled staff the new shift cannot run, and poor selection would worsen quality.

Step 3: Analyse the schedule (sequencing and critical path)

Explain the purpose of a Gantt chart or network schedule: showing the sequence of tasks, their durations and dependencies so managers can coordinate resources and set a realistic completion date. Then calculate the critical path, the longest chain of dependent tasks:

Task A finishes at week 6 but D cannot start until C finishes at week $8 + 2 = 10$, so A has slack of

Issues to identify:

• The 10-week target is 3 weeks short of the minimum 13 weeks, so the owner's promise to customers is unrealistic.
• The whole project hinges on the overseas lead time (task B), so any shipping or customs delay pushes completion back week for week.
• The draft has no allowance for testing failures or for training staff before the machine arrives.

Step 4: Recommendations (operations strategies)

• Reschedule and communicate. Adopt a 13 to 14 week plan, use A's 4 weeks of slack to start recruitment later (saving wages) or to train new staff on existing equipment first, and tell customers the revised delivery dates.
• Technology. The CNC machine improves precision and consistency (quality) and cutting speed; recommend supplier-provided training and a maintenance agreement to avoid downtime.
• Supply chain and inventory. Negotiate firm delivery dates and freight tracking with the overseas supplier and consider a local distributor with shorter lead times; hold buffer stock of timber and fittings during the changeover (just-in-case) and move towards leaner inventory once output is stable.
• Quality management. Introduce quality control checks at the trial run and ongoing improvement targets (for example a lower defect rate) monitored by the operations manager.

Step 5: Conclusion

Restate the judgement: the expansion is sound, but only with a realistic schedule, skilled staff acquired in time and strategies that protect quality during the transition.

Final answer: Recommend proceeding with the expansion on a revised 13 to 14 week schedule, because the critical path $B \to C \to D \to E$ takes $13$ weeks (not 10) and task A has $4$ weeks of slack, supported by a structured acquisition process for the evening shift and operations strategies in technology, supply chain management and quality management.