Financial Health Assessment: EUROGRAPH COMPUTER SUPPLIES LTD

1. Financial Health Score: D

Explanation: While the company's financial vitals show some encouraging signs of growth and liquidity, this assessment is heavily weighted down by a critical non-financial factor — the company currently has a "Proposal to Strike Off" status. In medical terms, this is a patient with reasonable blood pressure and improving organ function, but one who has already signed a DNR order. The strike-off proposal indicates the company is in the process of being removed from the Companies House register, which effectively represents a terminal diagnosis for the corporate entity unless the proposal is withdrawn. Combined with overdue accounts filing, this creates a picture of a business that may be winding down, regardless of what the numbers suggest.

2. Key Vital Signs

💓 Liquidity (Current Ratio)

4.49:1 — Current Assets (£1,261,533) vs Current Liabilities (£280,933)

Reading: This is a robust reading, well above the healthy benchmark of 1.5:1. The company appears to have more than adequate short-term resources to meet its near-term obligations. Think of this as a strong pulse — the business can pay its immediate bills.

🫁 Leverage (Debt-to-Equity Ratio)

2.55:1 — Total Liabilities (£821,399) vs Shareholders' Funds (£322,507)

Reading: For every £1 of the owners' money, there is £2.55 of debt. This is moderately elevated. While not in the "danger zone" (above 3:1 would be concerning), it suggests the business is reliant on creditor and lender support. The long-term liabilities jumped significantly from £591,080 to £821,399 — a 39% increase year-on-year, which warrants investigation.

🧠 Net Asset Growth

Reading: The trajectory is encouraging. After a dip in 2018, net assets have grown consistently for six consecutive years, nearly tripling from their 2018 low. This suggests the underlying business model generates profit and retains earnings. The P&L reserve growing from £96,444 (2018) to £322,007 (2023) confirms profitability.

🩸 Cash Position

Reading: Cash has improved substantially from the dangerously thin level of 2018. However, the 2020 spike to £126,310 followed by a drop to £78,853 in 2021 suggests some volatility — possibly COVID-related (government support inflating 2020, followed by a return to normal). The current cash of £146,786 represents approximately 10.3% of total assets, which is adequate but not excessive.

🔬 Asset Composition Concern

Current Assets breakdown (2023): - Stocks: £700,000 (55.5% of current assets) - Debtors: £414,747 (32.8%) - Cash: £146,786 (11.6%)

Reading: Over half of current assets are tied up in inventory. Stocks increased by £150,000 (27%) from 2022 to 2023. This could indicate: - Anticipated demand (positive) - Slow-moving or obsolete stock (negative) - A business stocking up before winding down (concerning given strike-off status)

The Quick Ratio (excluding stocks): (£146,786 + £414,747) / £280,933 = 2.0:1 — still healthy, but the quality of those debtors matters significantly.

⚠️ Critical Non-Financial Vitals

The "Proposal to Strike Off" is the equivalent of a "do not resuscitate" order. This means either: - The director has voluntarily applied to dissolve the company - A third party has applied to strike it off (often for non-compliance)

3. Diagnosis

Primary Diagnosis: Corporate Euthanasia in Progress

The financial statements tell a story of a business that, on paper, appears to be in reasonable health. Net assets are growing, cash is adequate, and the current ratio is strong. However, the Proposal to Strike Off status is the overriding clinical finding that cannot be ignored.

This creates a paradox: Why would a seemingly profitable, growing business volunteer to be dissolved?

Possible explanations:

Scenario A — Voluntary Closure by Director Mr Mohammed Rahim (sole director, secretary, and >75% shareholder) may have decided to cease trading and close the company. The growing net assets and cash could represent the orderly realisation of the business — collecting debtors, running down stock, and accumulating cash before closure. The jump in long-term liabilities (£591k → £821k) might represent director loans being reclassified or settlement arrangements.

Scenario B — Compulsory Strike-Off by Third Party A creditor or other party may have applied to strike off the company for non-compliance. The overdue accounts filing supports this theory. If the company fails to respond, it will be dissolved regardless of its financial position.

Scenario C — Administrative Neglect The director may simply have stopped engaging with statutory requirements, and Companies House is initiating strike-off procedures as a result.

Secondary Findings:

1. Increasing Leverage: Long-term liabilities grew by £230,319 (39%) in a single year. Without a profit & loss account (the director chose not to file one), it's impossible to determine whether this represents new borrowing, reclassification of existing debt, or something else. This is a significant symptom that requires investigation.

2. Inventory Concentration Risk: £700,000 in stock represents a material concentration. If this stock is slow-moving or obsolete, the realisable value could be significantly below book value, meaning net assets are overstated.

3. Minimal Share Capital: Only £500 in share capital, with the vast majority of equity coming from retained profits (£322,007 in P&L reserve). This means the business has been entirely self-funded from profits, which is generally positive, but also means there's minimal capital buffer beyond retained earnings.

4. Director Dependency: A single individual serves as both director and secretary, owns more than 75% of shares, and appears to be the sole decision-maker. This creates significant key-person risk.

4. Recommendations

🚨 Immediate Actions (Urgent)

1. Determine the Strike-Off Status - Contact Mr Rahim immediately to understand whether the strike-off is voluntary or compulsory - If voluntary and the intention is to close, ensure all creditors are properly settled first (legal requirement) - If compulsory or unintended, file the necessary objections and bring filings up to date to halt the process - If no action is taken, the company will be dissolved, and assets could pass to the Crown as bona vacantia

2. File Overdue Accounts Immediately - The accounts are overdue, which may be contributing to the strike-off action - Late filing penalties will apply and increase over time - Filing may automatically pause the strike-off process

📋 Short-Term Actions (Within 30 Days)

3. Investigate the Long-Term Liability Increase - Determine why long-term creditors increased by £230,319 - Verify whether this represents genuine new borrowing or reclassification - Review the terms and maturity of these obligations

4. Assess Stock Quality - Conduct a full stock review to determine how much of the £700,000 inventory is readily saleable - Identify any obsolete or slow-moving items that may need to be written down - If the business is winding down, develop a stock realisation plan

🔮 Medium-Term Actions (If Business Continues)

5. Reduce Key-Person Risk - If the business continues, consider appointing at least one additional director - Ensure proper succession planning and delegation of authority

6. Improve Financial Transparency - Consider filing full (rather than abridged) accounts to provide greater visibility to stakeholders - File a profit & loss account to give a clearer picture of trading performance

7. Manage Debt Levels - Develop a plan to reduce the debt-to-equity ratio below 2:1 - Review whether long-term liabilities can be refinanced on better terms or paid down

Summary of Financial Health Indicators