CASTLE CARPENTRY & CONSTRUCTION LTD

Executive Summary

Castle Carpentry & Construction Ltd shows signs of financial strain, with negative working capital and minimal equity indicating liquidity challenges. Immediate focus on improving cash flow, inventory management, and possibly securing additional capital is essential to stabilize financial health and support ongoing business growth.

CASTLE CARPENTRY & CONSTRUCTION LTD - Analysis Report

Company Number: 14006008

Analysis Date: 2025-07-29 20:50 UTC

Financial Health Assessment: CASTLE CARPENTRY & CONSTRUCTION LTD (to 31 March 2024)

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1. Financial Health Score: D

Explanation:
The company shows clear symptoms of financial distress primarily due to persistent net current liabilities (negative working capital), minimal net assets, and a fragile equity base, despite being operational and filing timely. While it is not insolvent, the financial "vital signs" indicate a precarious position that needs urgent attention to restore stability and healthy cash flow.

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2. Key Vital Signs (Core Financial Metrics)

Metric	2024 Value	Interpretation
Current Assets	£47,032	Moderate level, includes cash (£11,606), debtors (£6,997), and significant stock (£28,429).
Current Liabilities	£56,345	Higher than current assets, indicating immediate obligations exceed liquid resources; a symptom of liquidity stress.
Net Current Assets	-£9,313	Negative working capital; "unhealthy cash flow" warning sign, company may struggle to meet short-term debts.
Net Assets (Equity)	£52	Extremely low (virtually insolvent on net asset basis), reflecting minimal shareholder buffer against losses.
Tangible Fixed Assets	£19,853	Reasonable investment in plant & machinery; however, partially financed by hire purchase (debt).
Hire Purchase Debt	£8,698 (total)	Medium-term liabilities secured on fixed assets; adds to financial burden and interest expense.
Debtors	£6,997	Small and possibly slow collection; improvement needed to enhance liquidity.
Stock	£28,429	Large proportion of current assets tied in inventory; risk of obsolescence or slow turnover exists.
Cash at Bank	£11,606	Limited but improved from prior year; still insufficient to cover all short-term liabilities.
Retained Earnings	£48	Barely positive; company has not accumulated meaningful profits yet.
Employees	8 (average)	Growth from 2 last year; indicates business expansion but increases overheads and financial commitments.

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3. Diagnosis: What the Financial Data Reveals

• Liquidity Strain: The company is experiencing "symptoms of distress" in liquidity, evidenced by negative net current assets (-£9,313). This means short-term debts exceed short-term assets, potentially causing cash flow crunches. The relatively small cash balance and high trade creditors (over £27k) intensify this risk.

• Leverage and Debt Burden: The firm relies on hire purchase agreements to fund fixed assets (£8,698 debt), increasing financial pressure through repayments and interest. Additionally, director loans (noted at £5,997 owed to the company) indicate internal financing support but also highlight external financing challenges.

• Fragile Equity Base: Net assets stand at a mere £52, signaling the company’s equity cushion is almost depleted. This precarious position reduces resilience to operational shocks or market downturns.

• Inventory Management Concerns: Stock is a significant portion of current assets (~60%), which may tie up cash and pose risks if turnover is slow or stock becomes obsolete.

• Growth Phase Challenges: The increase in employees from 2 to 8 suggests expansion, but this also raises fixed costs and working capital needs, which the company currently struggles to finance efficiently.

Overall, the company resembles a patient with "low blood pressure" in financial health—operations continue, but the financial "heartbeat" is weak, and immediate corrective measures are needed to avoid deterioration.

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4. Recommendations: Specific Actions to Improve Financial Wellness

1. Improve Working Capital Management:

   • Accelerate debtor collections to boost cash inflows. Consider stricter credit terms or incentives for early payments.
   • Review inventory levels and turnover rates to reduce excess stock and free up tied-up cash.

2. Enhance Liquidity:

   • Explore short-term financing options, such as overdrafts or invoice discounting, to bridge cash flow gaps.
   • Negotiate extended payment terms with suppliers to better align outflows with inflows.

3. Debt Restructuring:

   • Assess the terms of hire purchase agreements for possible refinancing or restructuring to reduce immediate cash outflows and interest burden.

4. Capital Injection:

   • Consider additional equity investment from shareholders or external investors to strengthen the net asset base and provide a financial buffer.

5. Cost Control & Profitability Focus:

   • Monitor and control overhead costs, especially with increased staff numbers.
   • Focus on high-margin projects and efficient project management to improve profitability.

6. Financial Monitoring:

   • Implement robust financial reporting and cash flow forecasting to detect and react promptly to liquidity issues.

7. Director Support:

   • Continue leveraging director loans if viable, but formalize terms and plan timely repayment to avoid conflicts or financial strain.

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