Credit Analysis: CHAMP CONSULTANTS LIMITED

1. Credit Opinion: CONDITIONAL

Champ Consultants demonstrates a long-established trading history (26 years), consistent profitability, and a strong cash position. However, the latest accounts reveal a material shift in the balance sheet structure that requires clarification before full credit confidence can be established. Specifically, the emergence of £399,786 in "other creditors" (up from £6,918) alongside a £191,012 goodwill addition signals potential acquisition activity, which introduces integration risk and uncertain payment obligations. Credit approval is recommended subject to clarification of this liability and its repayment timeline.

2. Financial Strength

Balance Sheet Summary (FY2025): - Net Assets: £385,296 (up from £363,975 in FY2024, +5.9%) - Shareholders' Funds: £385,296 (fully equity-backed, no preference shares) - Accumulated P&L Reserve: £377,994 (demonstrating sustained retained profits) - Share Capital + Premium: £7,302 (minimal leverage from equity perspective)

Trend Analysis: Net assets have grown consistently from £135,029 (2016) to £385,296 (2025), representing approximately 185% growth over a decade. This trajectory is encouraging and indicates value accumulation rather than distribution.

Key Concern – Intangible Assets: Goodwill has increased from £56,414 to £247,426 following £191,012 in additions. This represents a significant acquisition. Goodwill is amortised over 5 years, which will create an annual charge of approximately £38,200 going forward (on top of existing amortisation), compressing reported profits. The quality of this intangible asset and whether it generates commensurate returns requires examination.

Tangible Asset Base: £35,516 – modest, comprising plant/machinery and vehicles. The business is not asset-heavy, which is typical for professional services but limits collateral value.

Equity Quality: The balance sheet is predominantly funded by retained earnings rather than injected capital, confirming organic profit generation over time.

3. Cash Flow Assessment

Liquidity Position: - Cash: £439,898 (significant improvement from £212,643) - Current Assets: £713,589 - Current Liabilities: £598,153 - Current Ratio: 1.19x (down from 2.83x in FY2024) - Cash to Current Liabilities: 0.73x

The current ratio has deteriorated substantially year-on-year, entirely driven by the "other creditors" balance. Without this item, the current ratio would be approximately 3.7x.

Working Capital Analysis: - Net Current Assets: £115,436 (down from £277,331) - Trade Debtors: £273,691 (up 27% from £215,763) – debtor days appear to be extending - Trade Creditors: £25,074 (down from £35,902) – the company pays suppliers promptly - Taxation & Social Security: £173,293 (up from £108,255) – likely reflects corporation tax on profits and possibly VAT

The Critical Question – Other Creditors (£399,786): This balance has increased by £392,868 year-on-year. In the context of the £191,012 goodwill addition, this strongly suggests deferred consideration for a business acquisition. If this liability is due within 12 months, it represents a significant cash outflow requirement that would consume nearly all available cash reserves.

Long-term Debt: Only £13,082 in bank loans falling due after one year (down from £23,266), indicating the company is not highly geared to external lenders.

Cash Generation: The cash increase of £227,255 year-on-year is positive, though the source requires understanding – is this operating cash flow, or has a liability been reclassified?

4. Monitoring Points

Specific Covenants/Conditions Recommended:

1. Clarification Required: Obtain details of the £399,786 other creditors balance – nature, counterparty, and repayment schedule
2. Acquisition Due Diligence: If acquisition-related, assess the acquired entity's performance and integration progress
3. Related Party Disclosure: Determine whether any of the "other creditors" represent obligations to the PSCs (the three shareholders each holding 25-50%)
4. Debtor Quality: Trade debtors have increased 27% – obtain aged debtor analysis and provision adequacy
5. Tax Liability: £173,293 in taxation/social security appears high relative to company size – confirm this is not overdue

Governance Note: The company files filleted accounts (no P&L disclosure) and is audit-exempt. Profitability cannot be directly verified from filed documents, though the P&L reserve increase of £21,321 suggests modest retained profit for the year. Full financial statements should be requested directly from the company.

PSC Structure: Three equal-holding PSCs (each 25-50%) with director appointment rights creates potential for deadlock in decision-making. This is a standard risk in closely-held professional practices but worth noting for longer-term facilities.