HODGSON TECHNOLOGIES LTD

Executive Summary

Hodgson Technologies Ltd demonstrates strong growth in net assets and working capital, signaling solid financial health. However, the large increase in debtors and reduced cash reserves suggest potential liquidity challenges that require improved credit control and cash management. With targeted actions, the company’s financial outlook remains positive and stable.

HODGSON TECHNOLOGIES LTD - Analysis Report

Company Number: 12740065

Analysis Date: 2025-07-29 16:27 UTC

Financial Health Assessment for Hodgson Technologies Ltd

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1. Financial Health Score: B

Explanation:
Hodgson Technologies Ltd exhibits a strong and improving financial position with solid net assets growth and positive working capital. The company shows healthy liquidity and stable shareholder equity. However, the significant increase in debtors and amounts owed to connected companies warrants monitoring to avoid future cash flow pressure. Overall, the company is financially sound but with some symptoms that require attention to maintain health.

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2. Key Vital Signs

Metric	2024 Value	Interpretation
Net Assets	£144,189	Healthy growth from £96,270 in 2023; indicates strengthening capital base.
Net Current Assets (Working Capital)	£119,989	Strong positive working capital; company can cover short-term liabilities comfortably.
Cash on Hand	£19,885	Cash reserves have dropped from £67,955 (2023), which could signal tighter liquidity.
Debtors	£143,543	Large increase from £14,533 in 2023; potential risk of cash flow blockage if not collected timely.
Current Liabilities	£43,439	Increased from £20,132 in 2023; mainly due to amounts owed to connected companies (£18,248).
Shareholders' Funds	£144,189	Equal to net assets, showing no long-term debt; solid equity position.
Fixed Assets (Net Book Value)	£24,200	Stable asset base, mainly in equipment and vehicles, providing operational capacity.
Director Advances	£134,687	Significant loans advanced by directors during 2024; indicates internal funding support.

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

• Positive Signs (Healthy Vital Signs):
  The company’s net assets and working capital have grown substantially over the past year, reflecting an overall strengthening financial position. The positive shareholders’ funds indicate the business is equity-financed without reliance on long-term debt, which is a sign of financial stability. The company’s fixed assets provide a tangible base to support operations.

• Symptoms of Distress (Areas to Monitor):

  • The sharp increase in trade and other debtors (from £14,533 to £143,543) is a notable symptom potentially indicating slower collections or extended credit terms. This could lead to cash flow constraints if these receivables are not converted to cash promptly.
  • Cash reserves have fallen from £67,955 to £19,885, which might reflect cash tied up in debtors or operational demands.
  • Current liabilities have more than doubled, largely due to amounts owed to connected companies (£18,248), suggesting reliance on intercompany financing or short-term borrowing.
  • The director advances of £134,687 suggest the business is supported by internal loans from directors rather than external financing. While this can be beneficial, it also signals the company may be using informal funding to meet cash needs.

• Operating Environment:
  The company operates in engineering and software development sectors, which often require investment in development and project-based receivables. The increase in debtors might reflect project billing cycles or contract terms.

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4. Prognosis: Future Financial Outlook

• If the company can improve debtor collection and manage cash flow prudently, the financial health should continue to improve, supporting growth and operational stability.
• There is a risk of liquidity strain if the large debtor balances remain unpaid or if current liabilities continue to increase without matching cash inflows.
• Continued support from directors (through advances) provides a buffer but is not sustainable indefinitely without formal funding or improved operational cash generation.

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5. Recommendations: Specific Actions to Improve Financial Wellness

• Enhance Debtor Management:
  Implement tighter credit control and proactive collection strategies to reduce outstanding receivables and convert them to cash faster. This will improve liquidity and reduce risk of bad debts.

• Review Intercompany Balances:
  Clarify the terms and repayment plans for amounts owed to and from connected companies to avoid surprise cash flow pressures. Formalise agreements where possible.

• Increase Cash Reserves:
  Aim to rebuild cash holdings by optimizing working capital management and possibly negotiating better payment terms with suppliers.

• Explore External Financing Options:
  While director advances have supported the business, consider formal external funding (e.g., business loans or overdrafts) to diversify funding sources and reduce dependency on internal loans.

• Monitor Operating Expenses and Capital Expenditure:
  Maintain discipline on capital spending and operating costs to preserve cash flow, especially given the current reduction in cash balances.

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Medical Analogy Summary

Hodgson Technologies Ltd shows healthy financial vital signs such as strong net assets and working capital, akin to a patient with a robust immune system. However, the symptoms of distress—notably the ballooning receivables and declining cash—are like signs of developing congestion in the bloodstream, which if unchecked, could impair the overall circulation of funds necessary for daily operations. With appropriate treatment focusing on clearing the 'blockages' (improving debtor collections and managing liabilities), the prognosis is good for sustained financial wellness.

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