EM ELECTRICAL LTD

Executive Summary

EM Electrical Ltd shows good financial health for a small electrical installation business, with positive working capital and growing equity indicating profitability and operational stability. However, low cash reserves relative to liabilities highlight a liquidity risk that should be managed by improving debtor collections and cash flow planning. Strategic investment and capacity building could support future growth while maintaining sound financial governance.

EM ELECTRICAL LTD - Analysis Report

Company Number: 13422964

Analysis Date: 2025-07-29 13:33 UTC

Financial Health Assessment of EM ELECTRICAL LTD as at 31 May 2024

---

1. Financial Health Score: B

Explanation:
EM Electrical Ltd demonstrates a stable and healthy financial position for a young small private limited company in the electrical installation sector. The company has positive net current assets (working capital), growing net assets, and consistent shareholder equity. However, its cash reserves are quite modest relative to current liabilities, which suggests some room for improvement in liquidity management. The absence of audit and limited scale of operations also indicate typical micro/small business characteristics, which poses moderate but manageable financial risk.

---

2. Key Vital Signs: Critical Metrics and Interpretation

Metric	2024 Value	2023 Value	Interpretation
Net Current Assets (Working Capital)	£12,975	£10,942	Positive and increasing, indicating good short-term financial health and ability to meet current obligations.
Current Assets	£23,900	£20,224	Slight growth, reflecting stable asset base available to cover liabilities.
Cash at Bank	£2,354	£3,702	Low cash relative to current liabilities, a "symptom of liquidity tightness" that could strain day-to-day operations if receivables slow.
Debtors	£21,546	£16,522	Increasing receivables may indicate growing sales but also potential credit risk or delayed collections.
Current Liabilities	£10,925	£9,282	Rising liabilities but still comfortably covered by current assets.
Net Assets (Equity)	£16,350	£15,442	Modest growth, showing retained earnings and capital accumulation.
Share Capital	£1	£1	Minimal, typical for small private limited companies; equity mainly from retained profits.
Tangible Fixed Assets (Net)	£3,375	£4,500	Slight reduction, likely due to depreciation of motor vehicles; no indication of major new capital expenditure.
Employee Count	1	1	Very small operation, likely owner-managed; limits scale but reduces overhead risk.

---

3. Diagnosis: What the Financial Data Reveals About Business Health

• Healthy Cash Flow Symptoms: The company shows positive working capital, meaning its short-term assets exceed short-term liabilities by a comfortable margin (£12,975). This suggests the business can cover its immediate debts and operational costs without distress.

• Symptom of Liquidity Tightness: Cash on hand is low (£2,354) compared to current liabilities (£10,925). This means that while the company has assets, much of it is tied up in debtors (£21,546). The company relies heavily on collecting receivables promptly to maintain liquidity. Delayed payments from customers could cause cash flow strain.

• Stable Growth and Profit Retention: Net assets and shareholders' funds have increased modestly (£15,442 to £16,350), indicating retained profits and sound financial management. The company is building a financial cushion.

• Limited Scale and Risk Exposure: With only one employee (likely the director), the business has low fixed costs but limited capacity for growth without further investment in staff or assets.

• Asset Depreciation: Tangible assets have decreased due to depreciation, signaling no major reinvestment in fixed assets this year. This is typical for small companies but may limit ability to expand operations.

• Compliance and Reporting: Accounts are unaudited abridged, which is normal for a small company but means external scrutiny is limited. Compliance is up to date with no overdue filings, reflecting good corporate governance.

---

4. Recommendations: Specific Actions to Improve Financial Wellness

1. Improve Cash Liquidity:

   • Accelerate debtor collections through stricter credit control policies or incentives for early payment.
   • Consider negotiating extended payment terms with suppliers to better match cash inflows and outflows.
   • Maintain a cash buffer to avoid liquidity crunches that could disrupt operations.

2. Expand Fixed Asset Base Strategically:

   • Evaluate if investing in updated equipment or vehicles could enhance operational efficiency and support growth.
   • Monitor depreciation carefully and plan for timely asset replacement.

3. Plan for Growth:

   • Consider hiring additional staff or subcontractors to increase capacity and revenue streams.
   • Explore diversifying services or expanding client base to reduce dependency on a small number of customers.

4. Financial Monitoring:

   • Implement regular financial reviews focusing on cash flow forecasting and debtor aging analysis to catch issues early.
   • Consider preparing more detailed management accounts beyond statutory filings to guide decision-making.

5. Maintain Compliance and Transparency:

   • Continue timely filing of accounts and confirmation statements to avoid penalties and maintain stakeholder confidence.
   • If growth accelerates, plan for audit requirements and possibly enhanced accounting controls.

---