DRAFTSPEC LTD

Executive Summary

Draftspec Ltd demonstrates solid financial stability with positive net assets and working capital, indicating a good foundation for growth. However, a negative cash balance signals liquidity management challenges that should be addressed promptly. By focusing on cash flow improvements and prudent expense control, the company can strengthen its financial health and support sustainable operations.

DRAFTSPEC LTD - Analysis Report

Company Number: 14480574

Analysis Date: 2025-07-29 16:04 UTC

Financial Health Assessment — DRAFTSPEC LTD

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1. Financial Health Score: B

Explanation:
Draftspec Ltd shows a generally sound financial position for a company in its first full year of trading. The company demonstrates positive net assets and working capital, indicating a stable balance sheet. However, a negative cash balance signals liquidity pressures that require attention. Given its micro/small size and early stage, this is typical but warrants close monitoring to avoid cash flow distress.

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2. Key Vital Signs

Metric	Value (£)	Interpretation
Net Assets	13,772	Positive net assets indicate the company’s total assets exceed liabilities, a healthy sign.
Net Current Assets	8,022	Positive working capital shows short-term assets cover immediate liabilities, supporting operations.
Cash at Bank	-25,805	Negative cash suggests overdraft or short-term borrowing, a warning signal for liquidity management.
Debtors	36,811	Substantial receivables imply revenue is booked but cash collection may be delayed.
Current Liabilities	2,984	Relatively low current liabilities reduces immediate financial pressure.
Shareholders’ Funds	13,772	Equity backing is positive, showing owner’s investment and retained earnings contribute to stability.
Employees	1	Small workforce typical for micro/small company, manageable overheads.

Explanation of Vital Signs in Layman’s Terms:

• Net Assets are the company’s “financial backbone.” Positive net assets mean the company owns more than it owes, which is healthy.
• Working Capital (Net Current Assets) is the company’s “operational fuel.” Positive working capital means it has enough short-term resources to pay bills and keep running smoothly.
• Negative Cash is like having an empty wallet or overdraft — a symptom of cash flow strain, despite having assets and receivables. This “dry throat” needs attention to prevent dehydration (financial distress).
• High Debtors indicate the company has made sales but is waiting to collect money, which can lead to cash flow delays.

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3. Diagnosis

Draftspec Ltd is essentially in good financial health for a young, micro-sized engineering design company. The positive net assets and working capital indicate the company is solvent and has a sound capital structure. The sole director and shareholder control 100% ownership, simplifying governance but concentrating risk.

The primary symptom of financial strain is the negative cash balance (£25,805 overdraft). This suggests cash is currently tight, likely due to timing differences between invoicing and cash receipts or initial investments in fixed assets (£5,750 in motor vehicles). The company has modest current liabilities (£2,984), which reduces immediate pressure.

Being in its first year, this negative cash flow is not unusual but must be managed proactively. The company’s reliance on debtor payments is a key factor in liquidity, so efficient collection processes are critical.

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4. Recommendations

1. Improve Cash Flow Management:

   • Accelerate debtor collections through clear credit terms and follow-up.
   • Consider offering early payment discounts or using factoring if receivables are slow to convert to cash.
   • Monitor bank balances daily to avoid overdraft penalties and maintain liquidity.

2. Control Overheads and Expenses:

   • Keep operating costs lean given the single employee structure.
   • Delay non-essential capital expenditures until cash flow improves.

3. Build Cash Reserves:

   • Aim to build a positive cash buffer to eliminate overdraft risk and provide a “financial cushion” for unexpected expenses.

4. Financial Forecasting:

   • Prepare monthly cash flow forecasts to anticipate potential shortfalls and plan financing or operational adjustments.
   • Review pricing strategy to ensure adequate margins.

5. Explore Funding Options If Needed:

   • If cash flow challenges persist, consider short-term financing or an equity injection from the shareholder to strengthen liquidity.

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Medical Analogy Summary

Draftspec Ltd’s financial “vital signs” show a generally healthy body with a strong skeleton (net assets) and functional organs (working capital). However, its “circulatory system” (cash flow) is currently congested, with negative cash indicating a blockage in liquidity. Addressing this symptom through better cash management and monitoring will improve overall health and reduce the risk of financial distress.

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