ACUITY DIRECT LTD

Executive Summary

Acuity Direct Ltd is experiencing liquidity strain, evidenced by negative working capital and reduced cash reserves, despite maintaining positive net assets. Immediate focus on improving cash flow, controlling costs, and potentially injecting capital is essential to stabilize the company’s financial health and ensure operational continuity.

ACUITY DIRECT LTD - Analysis Report

Company Number: 14192711

Analysis Date: 2025-07-19 12:55 UTC

Financial Health Assessment for Acuity Direct Ltd (as at 30 June 2024)

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1. Financial Health Score: C

Explanation:
Acuity Direct Ltd's financial health score is a "C" grade, indicating a moderate level of financial strain. The company shows warning signs in its liquidity position and working capital, which suggest some difficulty in meeting short-term obligations comfortably. However, the company still maintains a positive net asset position and shareholders' funds, showing that it is not insolvent, but there is room for improvement to restore more robust financial health.

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2. Key Vital Signs

Metric	2024 Value	2023 Value	Interpretation
Current Assets	£2,352	£3,265	Decreased liquidity; less cash and receivables
Cash at Bank	£151	£663	Low cash reserves — "weak pulse" in cash flow
Debtors (Receivables)	£2,201	£2,602	Slight decrease in amounts owed by customers
Current Liabilities	£3,140	£2,464	Increased short-term debts; potential pressure
Net Current Assets (Working Capital)	-£788	£801	Negative working capital indicates liquidity "symptoms of distress"
Total Assets Less Current Liabilities	£2,588	£5,021	Decline in asset buffer after short-term debts
Shareholders' Funds (Equity)	£2,588	£5,021	Equity halved, signaling reduced retained earnings

Interpretation of Vital Signs:

• The negative net current assets represent a key "symptom" of financial stress: the company does not have enough short-term assets to cover immediate liabilities, signaling liquidity issues.
• Cash levels have dropped significantly, a concern for daily operational needs and obligations.
• The reduction in shareholders’ funds and total assets less current liabilities suggests the company has been absorbing losses or experiencing reduced profitability.
• The company’s tangible fixed assets have depreciated, reflecting normal wear and tear, but also no significant investment in new assets.

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3. Diagnosis

Acuity Direct Ltd is currently facing liquidity challenges, akin to a patient whose vital signs show a reduced capacity to meet short-term demands despite still having a positive overall net worth. The "healthy cash flow" that sustains operational flexibility appears weakened, with cash reserves critically low and current liabilities exceeding current assets. This "financial distress" symptom, if not addressed, could lead to difficulties in paying suppliers, employees, or taxes on time, increasing operational risk.

Additionally, the significant drop in shareholders' funds indicates the business might be operating at a loss or distributing capital, which further drains the financial "energy" of the company. However, the company's net assets remain positive, suggesting that it is not insolvent but under pressure.

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4. Recommendations

To restore financial wellness and strengthen the company’s balance sheet, consider the following actions:

• Improve Liquidity:

  • Accelerate collection of debtors to convert receivables into cash faster.
  • Negotiate extended payment terms with creditors where possible to ease immediate cash outflows.
  • Monitor cash flow closely with weekly forecasts to anticipate shortfalls early.

• Cost Control and Profitability:

  • Conduct a thorough review of operational expenses to identify and eliminate non-essential costs.
  • Explore avenues to increase revenue or improve margins to rebuild retained earnings.

• Capital Injection:

  • If feasible, consider a capital injection from shareholders or external investors to bolster equity and cash reserves.
  • Alternatively, explore short-term financing options carefully, ensuring the cost of borrowing does not exacerbate financial stress.

• Asset Management:

  • Review fixed assets for potential disposals of underused equipment to generate cash.
  • Avoid further large capital expenditures until liquidity improves.

• Regular Financial Monitoring:

  • Implement monthly financial health checks focusing on liquidity ratios and working capital to identify early signs of distress and intervene promptly.

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