DREAMS ON WHEELS LTD

Executive Summary

Dreams On Wheels Ltd has shown encouraging signs of financial recovery with positive net assets after previous losses, but ongoing negative working capital and very low cash reserves pose liquidity risks. The company’s financial health is fragile, requiring focused cash flow management, liability restructuring, and possibly equity strengthening to ensure sustainable operations and avoid financial distress. Proactive management of these issues will be key to improving the company’s financial resilience.

DREAMS ON WHEELS LTD - Analysis Report

Company Number: 13204908

Analysis Date: 2025-07-29 14:34 UTC

Financial Health Assessment for DREAMS ON WHEELS LTD

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1. Financial Health Score: D+

Explanation:
DREAMS ON WHEELS LTD shows some signs of recovery from prior distress but remains financially fragile. The company has moved from negative net assets to a slightly positive equity position, which is encouraging. However, persistent negative working capital and significant long-term liabilities indicate ongoing liquidity and solvency challenges. The score reflects a company in a delicate state—showing improvement but still at risk without careful management.

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2. Key Vital Signs

Metric	2024 Value (£)	Interpretation
Net Current Assets	-11,271	Negative working capital ("symptom of cash flow stress") — current liabilities exceed current assets, indicating potential difficulty meeting short-term obligations.
Net Assets (Equity)	8,571	Slightly positive, a "healthy sign" compared to previous negative equity, reflecting improved solvency.
Current Liabilities	47,238	Substantial short-term debt, requiring close monitoring to avoid liquidity crises.
Long-term Liabilities	67,619	High debt due after one year, primarily hire purchase contracts and other creditors, indicating reliance on external financing.
Tangible Fixed Assets	91,817	Significant investment in assets, but these may not be easily liquidated in a crisis ("illiquid assets").
Cash at Bank	21	Extremely low cash reserves, a "red flag" for immediate liquidity.
Debtors	35,946	High receivables, but cash conversion depends on timely collection, which is critical.
Share Capital	1.00	Minimal share capital, typical for small private companies.
Company Age	3 years	A relatively young company, still in "growth and establishment" phase.

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3. Diagnosis: Financial Condition Overview

Symptoms Analysis:

• The company has shown a marked improvement in net assets, moving from a negative £289 in 2023 to a positive £8,571 in 2024, indicating that the company has started to rebuild its equity base. This is a positive sign akin to a patient beginning to recover strength after illness.

• Despite this, the company's working capital remains negative (£-11,271), indicating that current liabilities exceed current assets. This is a critical symptom of liquidity strain, suggesting that the company may struggle to meet short-term debts as they fall due without additional financing or faster collection of receivables.

• Cash holdings are almost negligible (£21), which points to a lack of immediate liquid funds to cover daily operational expenses, representing a "weak pulse" in cash flow health.

• The company is heavily leveraged with significant hire purchase contracts and other long-term creditors (£67,619), which increases financial risk and interest burden. This is analogous to a patient carrying a heavy load that impairs mobility.

• Tangible fixed assets are significant (£91,817), reflecting investment in plant and machinery. However, these assets are not quickly convertible to cash and may not help ease short-term financial pressures.

• The company operates in the SIC code 77110 (Renting and leasing of cars and light motor vehicles), a capital-intensive sector that often requires substantial upfront investment and ongoing maintenance costs, which might explain the high fixed assets and hire purchase contracts.

• The director holds 75-100% control, indicating centralized decision-making but also concentration of risk.

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4. Recommendations: Specific Actions for Improving Financial Wellness

1. Improve Cash Flow Management:

   • Prioritize faster collection of debtors to convert receivables into cash more quickly, which will help alleviate the liquidity crunch. Negotiate payment terms with customers and consider incentives for early payment.

2. Review and Restructure Short-Term Liabilities:

   • Engage with creditors to renegotiate terms, possibly extending payment periods or converting some short-term liabilities into longer-term financing to improve working capital.

3. Build Cash Reserves:

   • Implement tighter control over expenditures to increase cash holdings, even if it means delaying non-essential purchases or investments.

4. Asset Utilization:

   • Evaluate the fixed assets for potential sale or leaseback arrangements to release cash without disrupting core operations.

5. Financial Planning and Forecasting:

   • Develop detailed cash flow forecasts and scenario analyses to anticipate potential financial stress points and plan accordingly.

6. Consider Equity Injection:

   • If feasible, seek additional equity investment to strengthen the balance sheet and reduce reliance on debt.

7. Monitor and Control Debt Levels:

   • Avoid taking on new debt until existing liabilities are better managed and cash flow is stabilized.

8. Director’s Role:

   • Given the director's significant control, ensure transparent governance practices and consider seeking external financial advice to support decision-making.

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