Company Number: 13142574

Analysis Date: 2025-07-20 15:10 UTC

Financial Health Assessment: KARMA TEA CO. LIMITED

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1. Financial Health Score: C

Explanation:
KARMA TEA CO. LIMITED demonstrates a stable but cautious financial profile typical of a micro-entity in its early years. The company maintains positive net assets and working capital, indicating solvency, but there are signs of tightening liquidity and increasing long-term liabilities. The "C" grade reflects a generally sound position but with symptoms that require attention to avoid stress.

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2. Key Vital Signs

Metric	2024 Value (£)	Interpretation
Current Assets	5,151	Decreased from prior years, showing reduced short-term resource availability
Current Liabilities	3,694	Stable current obligations, manageable given assets
Net Current Assets (Working Capital)	1,457	Positive but decreased from 4,183 in prior year — indicates tighter liquidity ("mild symptom")
Creditors (Long-term)	12,075	Significant long-term liabilities relative to size; potential "chronic condition" for cash flow
Net Assets (Equity)	10,918	Positive equity indicates solvency; growth over years is good sign
Share Capital	1.00	Minimal share capital typical for micro-entities; reliance on reserves and liabilities
Average Employees	1	Very small headcount consistent with micro-category

Interpretation:

• The company’s working capital remains positive but has decreased by approximately 65% compared to the previous year, a "symptom" of tightening liquidity which requires monitoring.
• The large amount of long-term creditors (12,075 GBP) is a concern. Although not yet causing distress, this level of debt compared to current assets could become problematic if not managed well.
• Net assets have grown steadily from £7,851 in 2021 to £10,918 in 2024, indicating retained profits or capital injections supporting the company’s balance sheet "vital signs."
• The company operates in wholesale of coffee, tea, cocoa, and spices, a sector where cash flow management is critical due to inventory and supplier payments.

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3. Diagnosis

KARMA TEA CO. LIMITED is financially solvent and maintains positive shareholder equity, a "healthy heart" indicator of business viability. However, the liquidity "pulse" shows a weakening trend with reduced current assets and working capital, signaling a mild "symptom" of cash flow pressure.

The significant and stable long-term creditor balance is a "chronic condition" that should be carefully managed to ensure it does not impair liquidity or the ability to meet short-term obligations. The small workforce and micro-entity size limit overhead but may constrain operational flexibility.

Overall, the company is stable but at a critical juncture where improving cash flow and managing liabilities are essential to avoid progression towards financial distress.

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4. Recommendations

To improve financial wellness and strengthen the company’s financial health, the following actions are advised:

1. Enhance Liquidity Management:

   • Tighten credit control to accelerate debtor collections.
   • Review inventory levels to avoid overstocking and free up cash.
   • Negotiate payment terms with suppliers to improve cash outflow timing.

2. Address Long-term Liabilities:

   • Explore refinancing or restructuring options to reduce long-term creditor burden if possible.
   • Prioritize repayment plans that balance cash flow needs and debt reduction.

3. Increase Capital Base:

   • Consider injecting additional equity capital or retaining more profits to strengthen net assets and support growth without over-reliance on debt.

4. Operational Efficiency:

   • Monitor operational expenses closely given very lean staffing; ensure processes are scalable without compromising quality or service.

5. Regular Financial Monitoring:

   • Implement monthly cash flow forecasts and variance analysis to detect "symptoms" early.
   • Engage with financial advisors or accountants for periodic financial check-ups.

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