FARO PROPERTY GROUP LIMITED

Executive Summary

FARO PROPERTY GROUP LIMITED owns valuable investment properties but faces significant liquidity challenges due to large short-term liabilities exceeding current assets. The company relies heavily on director loans, creating financial strain despite positive equity growth. Addressing liquidity through improved cash management, loan restructuring, and exploring asset options is critical to stabilise financial health and ensure sustainable operations.

FARO PROPERTY GROUP LIMITED - Analysis Report

Company Number: SC691344

Analysis Date: 2025-07-29 17:23 UTC

Financial Health Assessment of FARO PROPERTY GROUP LIMITED

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1. Financial Health Score: D

Explanation:
FARO PROPERTY GROUP LIMITED shows signs of significant financial strain, primarily due to its persistent negative working capital (net current assets) and reliance on director loans. While it owns valuable investment property assets, the company's liquidity position exhibits symptoms of distress, which lowers its overall financial health rating to a D grade. This suggests the company is currently managing but has vulnerabilities that need addressing to avoid future financial complications.

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2. Key Vital Signs

Metric	2024 Value (£)	Interpretation
Investment Property (Fixed Asset)	1,320,000	Strong asset base in real estate, fair value stable since 2023.
Current Assets	27,141	Very low liquidity, primarily cash and debtors.
Cash	21,816	Limited cash reserves, slightly improved from prior year.
Current Liabilities	1,104,130	Very high short-term obligations, mostly director loans.
Net Current Assets (Working Capital)	-1,076,989	Negative by a large margin, indicating liquidity stress.
Total Assets Less Current Liabilities	243,011	Positive net assets, supported by property holdings.
Shareholders' Funds (Equity)	243,011	Equity increased from prior year, reflecting retained earnings.
Director Loan (Unsecured, Interest-Free)	1,061,008	Significant reliance on director funding, risk of withdrawal.

Vital Signs Interpretation:

• The negative working capital is a critical symptom of financial distress — current liabilities vastly exceed current assets, indicating potential difficulty in meeting short-term obligations from liquid resources.
• The company’s core asset, its investment property, is healthy and stable, providing a strong foundation and collateral value.
• The heavy reliance on an interest-free, unsecured director loan to fund current liabilities is a red flag; it shows external borrowing (outside typical financial institutions) is sustaining operations, which may not be sustainable long-term.
• The equity base is positive and improving, indicating the company retains accumulated profits and has not eroded shareholders’ funds.
• The cash position is low but somewhat stable, indicating limited buffer for operational shocks.

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3. Diagnosis

FARO PROPERTY GROUP LIMITED presents with a healthy core asset base (investment property), acting as the company's “heart” pumping potential value. However, the circulatory system — the liquidity and working capital — shows symptoms of blockage and strain due to excessive current liabilities, mainly director loans, far outweighing current assets. This creates a liquidity crunch, akin to a patient whose vital organs are functioning, but whose blood flow is severely impaired.

The company’s negative working capital suggests it may struggle to cover its short-term debts without refinancing or additional capital injections. While the directors have provided substantial loans on an interest-free basis, this is a temporary lifeline, not a cure. The absence of interest charges is positive but may mask the true cost and risk if these loans are recalled.

The profit and loss reserves are growing, indicating the company is generating some retained earnings, but this is insufficient to offset liquidity concerns currently. The prior period adjustments correcting property valuations suggest management is addressing accounting accuracy, which is a positive sign of governance and transparency.

Overall, the company is functioning but vulnerable, with liquidity symptoms that require monitoring and management to prevent financial distress worsening.

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4. Recommendations

1. Improve Liquidity Management:

   • Develop a cash flow forecast and actively manage receivables and payables to reduce the working capital deficit.
   • Explore short-term financing options with financial institutions to replace or reduce reliance on director loans, which may be recalled unexpectedly.

2. Restructure Director Loan:

   • Formalise terms for the director loan, potentially converting part to equity or agreeing on a repayment schedule to reduce uncertainty and improve financial stability.
   • Consider interest charges or other arrangements to reflect the economic reality and improve transparency.

3. Asset Utilisation:

   • Evaluate the possibility of unlocking value from the investment property through refinancing or partial sale if liquidity pressures intensify.
   • Explore increasing rental income or other revenue streams linked to the property assets.

4. Cost Control and Revenue Growth:

   • Review operating expenses carefully to identify cost savings.
   • Pursue strategies to grow turnover and improve profitability to boost cash inflows and build cash reserves.

5. Regular Financial Monitoring:

   • Establish monthly or quarterly financial health checks focusing on liquidity ratios and cash flow to detect early symptoms of distress.
   • Engage financial advisory support to implement robust financial controls and planning.

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