ARROW EDIBLE OILS LTD

Credit Analysis: ARROW EDIBLE OILS LTD

1. Credit Opinion: APPROVE

The company demonstrates a strong, well-capitalised balance sheet with substantial cash reserves and a track record of profitability and growth. While there is a slight decline in cash and net assets in the latest period, the overall financial position remains robust, supporting the capacity to service debt obligations. A standard unsecured credit facility of moderate size (e.g., up to £200k–£300k) would be acceptable. For larger amounts, secured lending or additional due diligence on trade debtor concentration is advisable.

Reasoning:
- Net assets have grown from £55,572 (2016) to £672,244 (2025), a twelvefold increase.
- Cash of £761,410 covers total current liabilities (£770,979) by 99%, implying near-perfect short-term liquidity.
- The company operates in the wholesale food sector (edible oils), which is essential and relatively recession-resilient.
- Directors have no adverse conduct records, and all statutory filings are current.

2. Financial Strength

Balance Sheet Health (as at 21 March 2025): - Total assets: £1,443,223
- Total liabilities: £770,979
- Net assets: £672,244 (Equity ratio = 46.6%)
- Shareholders’ funds: £672,244

Key Observations:
- The company is conservatively financed with no long-term debt shown on the balance sheet. All liabilities are current, reflecting trade credit and accruals.
- Fixed assets are minimal (£4,163), typical for a wholesaler – the business is asset-light and relies on working capital.
- Retained earnings have accumulated to £672,243, indicating sustained profitability over time. The slight dip from £795,174 in 2024 is likely due to the shorter accounting period (11 months) and normal trading fluctuations.

Trend Analysis (3-year):
| Year | Net Assets | Cash | Total Liabilities |
|------|------------|------|-------------------|
| 2023 | £785,640 | £1,036,564 | £932,516 |
| 2024 | £795,175 | £1,007,190 | £856,344 |
| 2025 | £672,244 | £761,410 | £770,979 |

While net assets and cash have decreased moderately, the magnitudes remain high relative to liabilities. The company is clearly not distressed.

3. Cash Flow Assessment

Liquidity & Working Capital: - Current assets (incl. cash): £1,439,060
- Current liabilities: £770,979
- Net current assets: £668,081 (positive working capital)
- Quick ratio (cash + debtors / current liabilites): (761,410 + 634,342) / 770,979 = 1.81 → strong
- Cash alone covers 99% of short-term debts.

Trade Cycle:
- Trade debtors: £633,662
- Trade creditors: £688,158
- The company is a net user of supplier credit (payables > receivables by ~£54k), which is normal in wholesale but should be monitored for aging trends.

Cash Flow Indicators:
- The drop in cash of £245,780 from 2024 to 2025 is the main area of focus. However, given the period is only 11 months, the annualised decline is less worrying. Additionally, trade debtors decreased by £35,465 and trade creditors increased by £117,201, suggesting the company used supplier financing to maintain liquidity.
- No profit & loss data is filed (small company exemption), but the increase in retained earnings over time confirms positive net income.

Assessment: The company has ample liquidity to meet obligations as they fall due. The operating cycle appears well-managed.

4. Monitoring Points

If credit is extended, the following should be tracked:

Recommendation for Facility Structure:
- Unsecured overdraft/revolving credit up to £200,000 would be low-risk given current cash cover.
- For term loans, request personal guarantee from Mr Malcolm Yates (>75% shareholder) to align interests.
- Require annual reviewed accounts (not just small company micro-accounts) if exposure exceeds £300,000.