COMPASS IT SERVICES LTD

Executive Summary

Compass IT Services Ltd currently faces liquidity and equity challenges, reflected in negative working capital and a sharp decline in net assets. While not insolvent, the company shows clear symptoms of financial distress that require prompt attention to cash flow management and capital structure. Implementing targeted cost controls, improving cash flow, and seeking professional guidance will be essential to restore financial health and ensure sustainable operations.

COMPASS IT SERVICES LTD - Analysis Report

Company Number: 12841818

Analysis Date: 2025-07-20 11:36 UTC

Financial Health Assessment for COMPASS IT SERVICES LTD

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1. Financial Health Score: D

Explanation:
The company exhibits signs of financial distress in its most recent year, with negative working capital and substantially diminished net assets compared to prior years. While it remains active with no overdue filings, the downward trend in liquidity and net worth tempers confidence in its immediate financial viability. The score "D" reflects a warning status — not yet critical, but requiring prompt remedial action to restore health.

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2. Key Vital Signs

Metric	2024 (£)	2023 (£)	Interpretation
Fixed Assets	1,363	3,086	Small tangible asset base; decreased slightly, possibly disposals or depreciation.
Current Assets	17,985	42,658	Substantial decrease in liquid and short-term assets; weakening liquidity.
Current Liabilities	19,198	27,425	Creditors due within a year decreased, but still significant.
Net Current Assets	(1,213)	15,233	Negative working capital indicates potential cash flow stress.
Total Assets Less CL	150	18,319	Net assets greatly reduced; close to break-even net worth.
Shareholders’ Funds	150	18,319	Equity almost depleted; risk of insolvency if trend continues.
Share Capital	1	1	Nominal share capital, typical in micro-entities.
Average Employees	2	2	Stable small workforce.
Directors’ Advances	14,512	13,307	Increasing director loans indicate reliance on internal funding.

Interpretation of Vital Signs:

• Negative Working Capital: The company’s current liabilities exceed its current assets, a "symptom of distress" indicating difficulty meeting short-term obligations with readily available resources.
• Equity Erosion: The decline from £18,319 to £150 in shareholders’ funds is alarming, signaling accumulated losses or withdrawals that have nearly wiped out the company's net worth.
• Director Advances: Rising balances owed to directors suggest external financing is not sufficient, and internal loans are being used to "prop up" liquidity, a red flag for financial health.
• Stable Employment: Employee numbers remaining constant is positive but does not offset financial weaknesses.

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3. Diagnosis

Compass IT Services Ltd is currently in a fragile financial condition, characterized primarily by a liquidity crunch and minimal net equity. The negative working capital signals that the company may struggle to pay suppliers and meet short-term liabilities without additional cash inflow or financing. The dramatic drop in net assets compared to the prior year points to operational losses or significant drawdowns, which have undermined the company’s financial "immune system."

The increasing directors’ loans suggest the business is relying on internal support to maintain operations, potentially masking underlying cash flow deficiencies. This situation is akin to a patient whose vital signs are deteriorating but is being kept stable through emergency interventions rather than sustainable treatment.

Without corrective action, these symptoms could escalate to solvency issues, risking administration or liquidation. However, the company is still filing on time and remains active, indicating management is attentive but must urgently address financial stability.

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4. Recommendations

To restore and maintain financial wellness, Compass IT Services Ltd should consider the following targeted actions:

• Improve Liquidity Management:

  • Accelerate debtor collections and review credit terms with customers to ensure timely cash inflows.
  • Negotiate extended payment terms with suppliers to ease immediate cash outflows.

• Cost Control and Profitability:

  • Conduct a detailed expense review to identify and eliminate non-essential costs.
  • Explore opportunities to increase revenue or diversify services to improve margins.

• Capital Structure Review:

  • Consider formalising director loans with clear repayment terms or converting some into equity to strengthen the balance sheet.
  • Evaluate the possibility of external funding or investment to bolster working capital.

• Financial Monitoring and Forecasting:

  • Implement regular cash flow forecasting to anticipate liquidity needs and avoid surprises.
  • Establish financial KPIs to monitor recovery progress and alert management to emerging risks.

• Professional Advice:

  • Engage a financial advisor or restructuring specialist to assist with turnaround strategies before the situation worsens.

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