LEMON AND HONEY LIMITED

Executive Summary

Lemon and Honey Limited is in a financially fragile state, with significant liquidity challenges and negative net worth despite substantial fixed assets. Immediate focus on cash flow improvement, debt restructuring, and operational efficiency is crucial to stabilize the company's financial health and avoid insolvency risks.

LEMON AND HONEY LIMITED - Analysis Report

Company Number: 13887391

Analysis Date: 2025-07-20 16:50 UTC

Financial Health Assessment of Lemon And Honey Limited (as at 31 March 2024)

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1. Financial Health Score: D

Explanation:
The company is exhibiting significant financial distress characterized by persistent net liabilities and a worsening working capital deficit. While it retains substantial fixed assets, the imbalance between short-term liabilities and current assets signals liquidity challenges. The negative shareholders’ funds and increasing losses suggest that the company's financial health is fragile and requires urgent remedial action.

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2. Key Vital Signs

Metric	2024 Value	Interpretation
Fixed Assets	£1,802,261	Healthy level of long-term assets, mainly property and equipment, indicating investment in infrastructure.
Current Assets	£78,522	Very low liquid assets and receivables relative to liabilities; risk of short-term cash shortage.
Cash on Hand	£23,278	Insufficient cash reserves to cover immediate obligations; a symptom of liquidity distress.
Current Liabilities	£1,300,647	High short-term debts due within one year, more than 16 times current cash, indicating pressure on working capital.
Net Current Assets	-£1,222,125	Negative working capital; company owes much more short-term than it owns to cover these debts.
Long-term Liabilities	£2,000,000	Significant long-term debt, likely to be a loan from a related party, adding financial strain.
Net Assets	-£1,419,864	Negative net worth showing accumulated losses exceed total equity, a red flag for solvency.
Shareholders Funds	-£1,459,864	Indicates shareholders’ equity is deeply negative, reflecting sustained losses and possible capital erosion.

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3. Diagnosis: What the Financial Data Reveals

Lemon and Honey Limited displays classic symptoms of financial distress:

• Liquidity Squeeze: The company’s current liabilities vastly exceed current assets, resulting in a negative working capital position of over £1.2 million. This is like a patient with low blood pressure and weak pulse — the company lacks the immediate resources (cash and receivables) to meet its short-term obligations, risking insolvency if not addressed.

• Solvency Concerns: Negative net assets and shareholders’ funds illustrate that the company’s total liabilities surpass its assets. This is analogous to a patient whose vital organs are failing — the company’s financial foundation is compromised, and without intervention, it may face insolvency.

• Dependence on Related Party Funding: The £2 million loan from Parabola Limited, a related party, forms a large part of the company’s liabilities. While this may provide a lifeline, it also reflects dependency and potential risk if the lender withdraws support.

• Asset Base vs. Cash Flow: Despite owning significant fixed assets (property and equipment), the company has very limited cash and current assets. Fixed assets are illiquid, meaning they cannot be quickly converted into cash to cover urgent expenses. This is like having a strong skeleton but weak muscles and blood flow — the company’s structure is there but cannot sustain operational needs.

• Operational Scale & Workforce: The company employs around 30 people, indicating a moderate operational scale. However, the financial strain suggests operational cash flow is insufficient to support ongoing activity.

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4. Recommendations: Steps to Improve Financial Wellness

1. Improve Liquidity Management:

   • Accelerate collection of receivables and reduce inventory levels to boost current assets.
   • Negotiate extended payment terms with suppliers to ease short-term cash outflows.
   • Consider short-term financing options or overdrafts to cover urgent cash needs.

2. Restructure Debt:

   • Engage with the related party lender to explore restructuring the £2 million loan, possibly extending terms or converting part of it into equity to reduce immediate repayment pressure.
   • Explore external refinancing options to diversify funding sources.

3. Cost Control and Operational Efficiency:

   • Review operational expenses, including staff costs, to identify potential cost savings.
   • Focus on profitable contracts and services to stabilize cash flow.

4. Asset Utilization:

   • Evaluate the possibility of monetizing or leasing underutilized fixed assets to generate cash inflows.
   • Avoid further fixed asset investments until liquidity improves.

5. Financial Monitoring:

   • Implement rigorous cash flow forecasting and financial controls to detect and act on early warning signs.
   • Regularly review financial performance with stakeholders.

6. Strategic Review:

   • Consider strategic options such as seeking equity investment, partnership, or partial sale to strengthen the capital base.
   • Assess business model sustainability in the current economic environment.

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Medical Analogy Summary:

Lemon and Honey Limited is currently showing symptoms akin to a patient with low vital signs—poor liquidity and negative net worth indicate the company is struggling to maintain its financial "heartbeat." Without prompt treatment—improved cash flow, debt restructuring, and cost control—the risk of "financial collapse" increases. However, the strong fixed asset "skeleton" offers potential support if leveraged wisely.

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