Credit Analysis: D O T ELECTRICAL LIMITED

1. Credit Opinion: CONDITIONAL

Reasoning: D O T Electrical presents a fundamentally sound credit profile with an 18-year trading history, consistent equity growth, and positive working capital. However, the most recent financial year (ending March 2026) shows concerning movements—a 6.7% decline in net assets and a 56.6% increase in creditors—that warrant additional scrutiny before full approval. The micro-entity filing status limits visibility into profitability and cash generation. I would recommend approval with standard conditions including quarterly monitoring and financial covenant compliance, but would seek clarification on the significant shift in asset composition and increased creditor position before extending substantial facilities.

2. Financial Strength

Balance Sheet Summary (March 2026): | Item | 2026 | 2025 | Movement | |------|------|------|----------| | Fixed Assets | £96,523 | £2,066 | +4,482% | | Current Assets | £153,325 | £236,310 | -35.1% | | Net Current Assets | £91,938 | £199,767 | -54.0% | | Net Assets | £186,396 | £199,883 | -6.7% |

Positive Indicators: - Net assets of £186,396 represent a solid equity base for a micro-entity - Historical trajectory shows exceptional growth—net assets increased from £18,276 (2016) to £186,396 (2026), representing approximately 10x growth over a decade - Shareholders' funds consistently positive with no history of losses eroding capital - Gearing appears conservative given the limited creditor position relative to equity

Concerning Indicators: - The dramatic shift from current to fixed assets requires explanation. Fixed assets jumped from £2,066 to £96,523—this suggests either a property acquisition, significant equipment investment, or potentially a reclassification. This movement fundamentally alters the liquidity profile of the business. - The decline in net assets year-over-year is the first significant reversal in the company's history. Without P&L data (micro-entity exemption), we cannot determine whether this reflects trading losses, asset write-downs, or dividends/distributions to shareholders. - Net current assets have nearly halved, reducing the working capital buffer.

Historical Trajectory: The longer-term view is encouraging. Net assets progression: - 2017: £46,316 - 2018: £88,651 - 2019: £98,292 - 2020: £117,959 - 2021: £167,831 - 2025: £199,883 - 2026: £186,396

The growth through 2025 was consistent and impressive. The 2026 decline warrants investigation but does not, in isolation, undermine the overall strength of the balance sheet.

3. Cash Flow Assessment

Liquidity Position: - Net current assets of £91,938 remain positive, indicating the company can meet short-term obligations - However, the current ratio has deteriorated significantly. Using available figures: current assets of £153,325 against creditors of £68,199 gives a current ratio of approximately 2.25:1 (down from approximately 5.43:1 in 2025) - A current ratio above 2:1 is generally comfortable, but the velocity of decline is noteworthy

Working Capital Analysis: - The £68,199 creditor balance represents a substantial increase from £43,565—this 56.6% rise could indicate: - Normal trading growth with increased supplier credit usage - Timing of year-end payments - Potential cash flow pressure requiring extended creditor days - The fixed asset acquisition may have been funded partly through trade creditors

Cash Generation Capacity: - Historical cash positions have been strong (£80,761 in 2021) - The micro-entity accounts do not provide a cash flow statement, making it impossible to assess operating cash conversion - Without P&L data, we cannot calculate EBITDA or interest coverage ratios

Key Unknown: The most significant limitation is the absence of profit and loss information. Micro-entity filers are exempt from filing P&L accounts, meaning we cannot assess: - Revenue trends or profitability margins - Whether the net asset decline reflects operating losses or shareholder distributions - True cash generation capability independent of balance sheet movements

4. Monitoring Points

Immediate Actions Required: 1. Clarification on Fixed Asset Movement: Request details on the £94,457 increase in fixed assets. Is this property, equipment, or vehicles? How was it funded? What is the expected return on this investment?

2. Explanation of Net Asset Decline: Determine whether the £13,487 reduction in net assets represents trading losses, asset impairments, or shareholder dividends/distributions.

3. Creditor Increase Justification: Understand the 56.6% increase in creditors. Request trade creditor aging analysis and confirmation that no payments are in arrears.

Ongoing Monitoring: 1. Liquidity Ratio: Track current ratio quarterly—target above 1.5:1 as a minimum threshold given the sector 2. Net Asset Trend: Monitor for continued erosion; any further decline exceeding 10% should trigger a review 3. Creditor Days: Request management accounts to calculate and monitor trade creditor payment patterns 4. Employee Costs: With headcount increasing from 6 to 7, monitor payroll obligations and seasonal cash flow impacts 5. Related Party Transactions: Given the family ownership structure (Waller family controls >75% of shares), monitor for potential extraction of value through management charges, rent, or other related-party arrangements

Sector Considerations: - Electrical installation and repair (SIC 33140/43210) is typically cash-positive with short working capital cycles - Trade creditors in this sector often reflect materials purchased for specific contracts - The business appears well-capitalized for its size, suggesting resilience through economic cycles