EMERALD ENGINEERING LTD

Executive Summary

Emerald Engineering Ltd shows early signs of financial stress, particularly with negative working capital and a sharp decline in equity. The company relies on director funding to maintain liquidity, indicating operational cash flow challenges. Immediate focus on cash flow management, debt reduction, and profitability improvement is critical to restore financial stability and ensure long-term viability.

EMERALD ENGINEERING LTD - Analysis Report

Company Number: 14094149

Analysis Date: 2025-07-20 16:06 UTC

Financial Health Assessment Report: Emerald Engineering Ltd

---

1. Financial Health Score: C

Explanation:
Emerald Engineering Ltd’s financial health is currently borderline stable but shows clear symptoms of financial stress. The company has a positive net asset position but suffers from negative working capital and liquidity strain. Given the recent deterioration in liquidity and reliance on director advances, the overall health merits a cautious grade of C, indicating a need for close monitoring and corrective action.

---

2. Key Vital Signs

Metric	2023 (£)	2024 (£)	Interpretation
Fixed Assets	7,829	10,988	Slight increase in investment in long-term assets, showing some growth intent.
Current Assets	7,650	50,039	Significant increase, largely cash or receivables, but must be assessed with liabilities.
Current Liabilities	4,289	59,796	Sharp increase indicating a large rise in short-term debts, a red flag.
Net Current Assets	+3,361	-9,757	Shift from positive to negative, indicating liquid asset deficiency to cover short-term debts.
Total Assets Less Current Liabilities	11,190	1,231	Total net assets dropped sharply, indicating erosion of equity buffer.
Shareholders Funds (Equity)	11,190	1,231	Large reduction, pointing to losses or capital withdrawals; shareholder value diminished.
Director’s Loan Advances	0	9,441	Director has advanced funds, indicating external support to cover cash shortfalls.

Interpretation of Vital Signs:

• The company’s liquidity position has deteriorated rapidly over the latest year, as shown by net current liabilities of nearly £10k, suggesting the company may be struggling to meet short-term obligations without external support.
• The equity base has decreased dramatically from £11,190 to £1,231, showing a significant erosion of net worth possibly due to operating losses or asset write-downs.
• The director has injected significant funds (£144,806 advanced during the year, less repayments), which indicates reliance on insider funding to maintain operations.
• Fixed assets growth is modest and reasonable, but the significant jump in current liabilities needs urgent attention.

---

3. Diagnosis: Financial Condition Overview

Emerald Engineering Ltd is currently exhibiting symptoms of financial stress, particularly in liquidity management and capital preservation. The company’s working capital is negative, which is akin to a patient having low blood pressure—its immediate ability to meet short-term commitments is compromised. The sharp increase in current liabilities, contrasted with the increase in current assets that are not sufficiently liquid, suggests a mismatch or potential issues with debtor collection or creditor payment terms.

The drastic decline in shareholders’ funds signals that the company is either incurring losses or using capital to finance operations unsustainably. The director’s advances suggest the company is leaning on internal lifelines to stay afloat rather than generating sufficient operational cash flow.

Given these symptoms, Emerald Engineering Ltd can be described as a “financial patient” showing early signs of distress but not yet in critical condition. Immediate corrective measures could stabilize and restore financial health, but ignoring these warning signs risks further deterioration.

---

4. Recommendations: Steps to Improve Financial Wellness

Short-term:

• Improve Cash Flow Management: Conduct a cash flow forecast and closely monitor receivables and payables. Accelerate collections and negotiate longer payment terms with suppliers to ease liquidity pressures.
• Reduce Current Liabilities: Prioritize paying down short-term debts to restore positive working capital. Avoid incurring new short-term liabilities unless absolutely necessary.
• Transparency with Stakeholders: Maintain clear communication with the director and any lenders about financial challenges to ensure ongoing support if needed.

Medium-term:

• Profitability Review: Analyze the income and expenditure drivers to identify loss-making activities or inefficiencies. Aim to restore profitability to rebuild equity.
• Capital Injection: Consider formalizing director advances as equity or secure external funding to shore up the balance sheet and reduce reliance on short-term loans.
• Cost Control: Implement strict cost management policies, especially around overheads and discretionary spending.

Long-term:

• Strategic Business Planning: Develop a robust business plan focusing on sustainable growth, possibly diversifying income streams or improving operational efficiency.
• Strengthen Financial Reporting: Consider periodic financial reviews or audits to gain deeper insights and assure stakeholders.
• Build Reserves: Aim to rebuild cash reserves and shareholders’ funds to create a buffer against future shocks.

---

Medical Analogy Summary

Emerald Engineering Ltd is like a patient who has experienced a sudden drop in blood pressure (liquidity) and weakening heart muscle (equity). The director’s advances are akin to emergency intravenous fluids keeping the patient alive temporarily. Without immediate treatment—improving cash flow and reducing liabilities—the risk of financial collapse increases. However, with prompt attention and lifestyle changes (cost control, profitability focus), the company can regain its financial health and thrive.

---