AVA BROTHERS CONSTRUCT LTD

Executive Summary

AVA BROTHERS CONSTRUCT LTD has maintained positive net assets and working capital, indicating fundamental financial stability. However, a significant drop in cash reserves coupled with increased debt levels signals liquidity challenges and higher financial risk. Immediate focus on cash flow improvement and debt management is recommended to support sustainable growth and financial resilience.

AVA BROTHERS CONSTRUCT LTD - Analysis Report

Company Number: 13555798

Analysis Date: 2025-07-29 19:01 UTC

Financial Health Assessment: AVA BROTHERS CONSTRUCT LTD (As of 31 August 2024)

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1. Financial Health Score: C

Explanation:
AVA BROTHERS CONSTRUCT LTD shows a mixed financial picture. While the company has maintained positive net assets and working capital, significant changes in liabilities and cash flow suggest caution. The company's ability to cover short-term obligations has weakened compared to the previous year, and the introduction of long-term bank loans has raised financial leverage. These factors combined indicate moderate health but with some symptoms of financial stress that require close monitoring and management.

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2. Key Vital Signs (Core Financial Metrics)

Metric	2024 Value (£)	2023 Value (£)	Interpretation
Net Assets (Shareholders' Funds)	17,585	29,998	Positive but declined by ~41%, indicating erosion of equity possibly due to losses or increased liabilities.
Fixed Assets (Net Book Value)	61,776	0	Significant investment in motor vehicles (~£75k gross cost), indicating expansion or asset acquisition.
Current Assets	52,597	35,761	Increased current assets, mainly driven by debtors rising from £26k to £52k, which may indicate slower collections.
Cash at Bank and in Hand	784	9,649	Sharp drop in cash balance, raising concerns about liquidity and immediate cash availability.
Current Liabilities	21,344	5,763	Nearly 4x increase, driven by directors’ loan accounts (£11k) and bank loans/overdrafts (£1.6k).
Long-term Liabilities	75,444	0	New long-term bank loan introduced, adding financial risk and interest obligations.
Net Current Assets (Working Capital)	31,253	29,998	Positive and stable, which is a good sign, but the increase in current liabilities warrants caution.
Debtors (Trade + Tax Recoverable)	51,813	26,112	Doubled, possibly indicating slower customer payments or increased sales on credit.

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3. Diagnosis: What the Numbers Reveal

• Liquidity and Cash Flow:
  The company has symptoms of distress in liquidity. The cash balance has plunged from £9,649 to just £784, despite current assets rising. This suggests that cash is tied up in debtors or other non-liquid assets, potentially causing cash flow strains. The ability to meet immediate obligations may be compromised without timely debtor collections or additional financing.

• Leverage and Solvency:
  Introduction of a long-term bank loan of £75,444 significantly increases financial leverage and fixed obligations. While this may fund asset acquisition (motor vehicles), it increases risk and interest costs. The erosion of net assets (down 41%) signals the company is using more debt relative to equity, which can be a red flag if earnings don't keep pace.

• Working Capital:
  Positive and stable net current assets indicate the company can cover short-term liabilities with current assets. However, increased current liabilities, including directors’ loan accounts, add complexity to the short-term financial picture.

• Asset Management:
  The rise in fixed assets shows investment in operational capacity, which could be positive if it leads to increased revenue. The doubling of trade debtors suggests slower payment collection or extended credit terms, which may strain cash flow.

• Profitability & Retained Earnings:
  The Profit and Loss account balance has decreased from £29,898 to £17,485, suggesting the company may have incurred losses or drawn down reserves during the year.

• Corporate Governance and Ownership:
  Directors hold significant control (50-75% and 25-50%), and directors’ loan accounts appear in liabilities and debtors, indicating inter-company financing that requires transparency and prudent management to avoid conflicts or cash flow issues.

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4. Recommendations to Improve Financial Wellness

• Improve Cash Flow Management:
  Prioritize collection of outstanding debtors to convert credit sales into cash promptly. Implement stricter credit control policies to reduce days sales outstanding (DSO).

• Review and Manage Debt Levels:
  Monitor loan servicing capacity closely. Consider negotiating more favourable terms or refinancing to reduce interest burden and improve liquidity.

• Optimize Working Capital:
  Analyze current liabilities structure, especially directors’ loan accounts, to ensure these are sustainable and documented with clear repayment plans.

• Asset Utilization:
  Ensure the new fixed assets (motor vehicles) are generating sufficient returns to justify the investment and associated financing costs.

• Profitability Focus:
  Conduct a detailed review of profit margins and cost controls to halt erosion of retained earnings. Explore opportunities to increase revenue or reduce overhead.

• Financial Reporting & Transparency:
  Maintain up-to-date and accurate financial records. Consider periodic financial health checks to detect early symptoms of distress.

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Medical Analogy Summary

AVA BROTHERS CONSTRUCT LTD currently shows a stable heartbeat with positive working capital, but symptoms of liquidity strain and increased financial leverage suggest the company is under some stress. The sharp drop in cash reserves and rise in liabilities are like a patient with reduced fluid levels and increased blood pressure—manageable but requiring careful monitoring and intervention. Prompt action on cash flow and debt management will be critical to restoring full financial health.

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