Investment Risk Analysis: AUTUMN LODGE LTD

1. Risk Rating: MEDIUM

Justification: The company remains solvent with positive net assets of £230,039 and substantial tangible assets (£597,617), but exhibits a concerning trajectory of deteriorating financial health. The emergence of negative working capital in 2024, combined with a 76% decline in cash reserves over two years, raises material concerns about liquidity and operational sustainability. However, the company continues to trade with 17 employees and maintains current filing obligations.

2. Key Concerns

Concern 1: Negative Working Capital

Net current assets swung from +£124,375 (2023) to -£9,460 (2024). Current liabilities (£117,446) now exceed current assets (£107,986), meaning the company cannot cover its short-term obligations from liquid resources. This is a classic liquidity warning sign. The current ratio has deteriorated from 2.22 to 0.92 in a single year—an abrupt and significant shift.

Concern 2: Accelerating Cash Depletion

Cash reserves have declined dramatically: - 2022: £458,359 - 2023: £226,142 (-50.7%) - 2024: £107,986 (-52.2%)

This represents a £350,373 (76.4%) reduction in cash over two years. At the current rate of cash outflow, and without visibility into revenue (no P&L filed), there is a material risk the company could face a cash crisis within 12-18 months if the trend continues.

Concern 3: Erosion of Shareholders' Equity

Net assets have fallen from £637,983 (2022) to £230,039 (2024)—a decline of £407,944 (64%) over two years. The retained earnings (P&L reserve) dropped by £116,904 in 2024 alone, indicating significant trading losses or distributions. Without the profit and loss account, it is impossible to distinguish between operational losses and director withdrawals/loan repayments.

3. Positive Indicators

• Substantial Tangible Asset Base: Fixed assets of £597,617 (likely property given the SIC code 55900 – Other accommodation) provide a significant asset backing relative to total liabilities of £358,118. This suggests asset coverage of approximately 1.97x total debt.

• Long-term Debt Reduction: Creditors due after more than one year decreased from £388,115 to £358,118 (-£30,000), indicating the company is servicing and reducing long-term obligations.

• Continued Operations: Employee count increased from 16 to 17, suggesting the business remains operational and is not contracting its workforce.

• Regulatory Compliance: Accounts and confirmation statements are filed and up to date. No overdue filings, no disqualification records for directors, and the company remains in active status.

• Long Operating History: Incorporated in 2008, the company has traded for over 16 years, demonstrating historical resilience.

4. Due Diligence Notes

Priority Investigations:

1. Profit & Loss Account: The directors have elected not to file the P&L (permitted under small company exemptions). Request this directly from the company to understand whether the equity erosion stems from trading losses, asset write-downs, or distributions to shareholders.

2. Cash Flow Drivers: Determine the cause of the £350k cash reduction over two years. Specifically investigate: - Whether capital expenditure explains any cash outflow - The nature of the significant reduction in total assets from £1.26M (2022) to £706k (2024) - Whether asset disposals occurred and at what values

3. Working Capital Management: Understand how the company plans to address the negative working capital position. Request: - Ageing of creditors due within one year - Terms of any overdraft facilities or director loans supporting liquidity - Cash flow forecasts for the next 12 months

4. Related Party Transactions: Given that Mrs Sandra Elizabeth Daniells owns >75% of shares and both directors share the same surname, investigate whether the equity decline reflects director remuneration, loan repayments, or other related party transactions.

5. Sector-Specific Risks: As a care home operator (SIC 55900), assess: - CQC registration status and inspection ratings - Local authority funding arrangements and fee levels - Occupancy rates and operational performance metrics

6. Long-term Liabilities: Clarify the nature of the £358,118 in creditors due after more than one year. If this includes secured lending against the property, understand the repayment schedule and covenant compliance.

7. 2022 Anomaly: The 2022 figures show notably higher total assets and cash than surrounding years. Investigate whether this reflected a specific event (property revaluation, asset acquisition, or temporary cash inflow) that has since reversed.