AUTOMATION ISLAND LTD

Executive Summary

AUTOMATION ISLAND LTD is a young but financially healthy IT services company showing strong liquidity, positive working capital, and growing equity. While current liabilities have increased, the company maintains a solid cash position and demonstrates good financial discipline. Continued focus on managing short-term obligations and improving debtor collections will support sustainable growth and financial resilience.

AUTOMATION ISLAND LTD - Analysis Report

Company Number: 13887794

Analysis Date: 2025-07-20 17:09 UTC

Financial Health Assessment for AUTOMATION ISLAND LTD

---

1. Financial Health Score: B

Explanation:
AUTOMATION ISLAND LTD demonstrates a sound financial condition with positive net current assets and growing shareholder funds over its first two years of operation. The company maintains a healthy cash balance relative to its short-term liabilities, indicating good liquidity and operational cash flow. However, the company is still young, with modest asset base and liabilities rising significantly in the latest year, suggesting a need to monitor working capital management closely. Overall, the company shows encouraging signs of financial wellness but has room for improvement in controlling short-term obligations and enhancing asset utilization.

---

2. Key Vital Signs: Critical Metrics & Interpretation

Metric	2024 Value (£)	Interpretation
Current Assets	37,427	Increased substantially, showing growth in liquid and receivable resources.
Cash & Cash Equivalents	28,438	Strong cash position supporting liquidity needs—vital "healthy cash flow".
Debtors	6,919	Increase in receivables, indicating growing sales or delayed payments from customers.
Current Liabilities	25,473	Significant increase, largely due to trade creditors, directors’ current accounts, and other creditors. Must be watched to avoid liquidity strain.
Net Current Assets (Working Capital)	11,954	Positive and nearly doubled year-on-year, indicating ability to cover short-term debts with current assets.
Shareholders’ Funds (Equity)	14,498	Growth in retained earnings evidences reinvested profits and business expansion.
Fixed Assets (Net Book Value)	2,544	Modest tangible asset base, typical for an IT services company with minimal physical capital.
Stock	2,070	Presence of stock indicates some inventory management; value is low, consistent with IT services.

Additional Notes:

• The company holds no audit exemption but has chosen the "Total Exemption Full" filing, common for small entities.
• Directors’ current accounts constitute a large portion of current liabilities (£7,020), which may be a form of director loans or drawings to be monitored carefully.
• Debtors include VAT balances, which are recoverable and less risky than trade receivables.

---

3. Diagnosis: Financial Condition Overview

AUTOMATION ISLAND LTD exhibits the "vital signs" of a young but growing small business showing promising financial health:

• Liquidity: The company has a robust cash reserve relative to its short-term debts, depicting a "healthy cash flow" and ability to meet immediate obligations without distress.
• Working Capital: Positive and increasing net current assets suggest sound short-term financial management, though the rise in current liabilities deserves attention to avoid "symptoms of distress" such as cash flow crunches.
• Profitability & Equity Growth: Retained earnings growth indicates the company is profitable or at least retaining capital effectively, building a solid equity base.
• Asset Utilization: Fixed assets are low, which aligns with the IT industry profile, indicating the company is not capital-intensive.
• Risk Factors: A notable increase in current liabilities includes directors’ current accounts, which while common, should be managed to prevent dependency on director funding. Increasing trade creditors and other creditors signal growing operational scale but also the need for careful cash conversion cycle management.

Overall, AUTOMATION ISLAND LTD is financially "fit" for its stage with no overt signs of financial distress but with some "symptoms" that warrant ongoing vigilance, particularly around managing liabilities and receivables as the business scales.

---

4. Recommendations: Steps to Improve Financial Wellness

1. Monitor and Manage Current Liabilities:

   • Keep a close eye on trade creditors and directors’ current accounts to ensure they do not escalate beyond manageable levels. Negotiate payment terms where possible to smooth cash flow.

2. Enhance Debtor Collection Processes:

   • Implement or strengthen credit control procedures to reduce days sales outstanding, converting receivables into cash more quickly and improving liquidity.

3. Maintain Healthy Cash Reserves:

   • Continue building cash reserves to buffer against unexpected expenses or slow-paying customers, ensuring ongoing operational stability.

4. Optimize Working Capital:

   • Review stock levels to avoid overstocking or obsolescence and improve inventory turnover. This will free up cash tied in stock.

5. Plan for Growth Funding:

   • As liabilities increase with growth, consider formal financing arrangements if necessary to avoid over-reliance on director loans and maintain a balanced capital structure.

6. Regular Financial Review:

   • Conduct quarterly financial health checks to detect early signs of stress and adapt strategies accordingly, much like regular health screenings prevent diseases.

7. Leverage Industry Expertise:

   • Given the company’s specialization in IT services and software development, invest in skills and technology that can improve operational efficiency and profitability.

---