FIRST ELEMENT LTD

Executive Summary

First Element Ltd is currently facing financial strain with negative working capital and shareholder funds, reflecting ongoing losses and liquidity challenges. While still operational, the company must urgently improve cash flow management, control costs, and consider capital restructuring to stabilize its financial health and avoid escalating distress. Proactive monitoring and strategic financial planning will be critical to recovery.

FIRST ELEMENT LTD - Analysis Report

Company Number: 12902912

Analysis Date: 2025-07-29 19:52 UTC

Financial Health Score: D

Explanation:
The company exhibits several troubling "vital signs" indicating financial distress. Negative net current assets, persistent shareholder deficits, and overall negative net assets suggest the business is "unwell" financially. While it remains active, the liquidity position is weak, cash reserves are minimal relative to liabilities, and accumulated losses are growing.

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1. Key Vital Signs (Core Financial Metrics)

Metric	2023 (£)	2022 (£)	Interpretation
Current Assets	71,883	63,206	Slight increase; positive but modest
Cash	20,152	777	Improvement, but still low overall
Debtors	51,731	62,429	Decreasing, but still large
Current Liabilities	77,662	65,475	Increasing; liabilities exceed current assets
Net Current Assets (Working Capital)	-5,779	-2,269	Negative, showing liquidity strain
Total Assets Less Current Liabilities	-4,722	-1,962	Negative; company owes more than it owns
Shareholders’ Funds (Equity)	-4,822	-2,062	Negative; accumulated losses exceed capital

Interpretation of Vital Signs:

• Negative Working Capital: The company’s current liabilities exceed its current assets — a classic symptom of financial distress. It may struggle to meet short-term obligations without additional financing or asset sales.
• Negative Equity: Shareholders' funds are negative and have deteriorated over the last two years, indicating the business has sustained losses exceeding its invested capital. This is akin to a patient losing more blood than it can replenish.
• Low Cash Reserves: Although cash improved in 2023, the level remains low compared to liabilities, suggesting tight cash flow and potential reliance on credit or delayed payments.
• Increasing Liabilities: Current liabilities have risen notably, worsening liquidity risks.

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2. Symptoms Analysis (What the Numbers Reveal)

• Liquidity Strain: Negative net current assets warn of a "cash flow crunch." The business likely faces challenges paying bills promptly, risking supplier relationships or credit terms.
• Ongoing Losses: Negative retained earnings indicate the company has been "bleeding" value over time, likely due to operating losses or insufficient profitability.
• Reliance on Debtors: High receivables (debtors) tied up in the business suggest slow collections or potential bad debts, which can further impair liquidity and operational health.
• Asset Base Minimal and Depreciating: Fixed assets are negligible (£1,057 in 2023), implying the company operates a service-oriented or consultancy model with limited tangible assets, which limits collateral for loans.
• Control and Ownership: Majority ownership by Solar 21 Renewable Energy Limited and significant influence by individual directors indicates a tightly held structure, which may ease access to additional funds but also concentrates risk.

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3. Diagnosis (Overall Financial Condition)

The company is exhibiting symptoms of financial distress with a fragile liquidity position and eroded equity base. The persistent negative working capital and shareholder deficits are warning signs akin to a patient with chronic illness requiring intervention. The business is not insolvent but is operating with strained finances that could escalate into solvency issues if not addressed.

Key concerns include:

• Insufficient liquid resources to meet short-term debts
• Eroding net worth from accumulated losses
• Potential over-reliance on slow-paying debtors
• Increasing creditor pressure as liabilities rise

The absence of an audit (exemption under small companies regime) means less external scrutiny, so internal financial discipline and monitoring are critical.

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4. Recommendations (Action Plan to Improve Financial Wellness)

1. Improve Cash Flow Management:

   • Accelerate debtor collections to convert "illiquid assets" into usable cash faster.
   • Negotiate extended payment terms with suppliers to ease immediate cash demands.
   • Consider short-term financing options to bridge liquidity gaps cautiously.

2. Cost Control and Profitability Enhancement:

   • Review overheads and operational costs to stem losses and improve margins.
   • Focus on higher-margin consultancy services or diversify revenue streams to boost income.

3. Capital Injection or Restructuring:

   • Explore equity injection from owners or external investors to shore up negative equity and provide working capital.
   • Consider restructuring debts or renegotiating terms to reduce pressure on current liabilities.

4. Regular Financial Monitoring and Forecasting:

   • Implement monthly cash flow forecasting and financial health checks to detect early warning signs.
   • Engage with a financial advisor or accountant to develop a turnaround plan.

5. Strengthen Governance:

   • Directors should closely monitor financial KPIs and ensure compliance with statutory obligations to avoid penalties or insolvency risks.

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