Company Number: 12533286

Analysis Date: 2025-07-20 12:04 UTC

Financial Health Assessment for LRH Electrical Ltd (as at 31 March 2024)

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1. Financial Health Score: D

Explanation:
The company shows signs of financial distress, primarily due to persistent negative working capital (net current assets) and a steep decline in net assets over recent years. The equity cushion (shareholders’ funds) is very thin at £425, down from £13,835 in 2020, indicating shrinking accumulated retained earnings and a fragile capital base. These indicators suggest liquidity challenges and potential solvency risk if current trends continue without corrective actions.

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2. Key Vital Signs

Metric	2024 Value	Interpretation
Fixed Assets	£20,542	Modest investment in long-term assets; declining slightly from previous year.
Current Assets	£53,151	Includes high debtors (£47,792) and moderate cash (£5,359).
Current Liabilities	£64,706	High short-term debt, exceeding current assets by £11,555 (negative working capital).
Net Current Assets (Working Capital)	-£11,555	"Symptom of distress": insufficient liquid resources to cover short-term obligations.
Net Assets (Equity)	£425	Very low net worth; sharp decline over 5 years, indicating accumulated losses or liabilities exceeding assets.
Share Capital	£1.00	Nominal capital; does not provide significant buffer.
Director Advances (Loans)	£37,433	Significant director loans to the company, which may reflect working capital support.
Trade Debtors	£10,359	Reasonable portion of current assets but large other debtors (£37,433) likely related to director advances.
Creditors due after one year	£8,562	Medium-term liabilities, indicating some longer-term debt obligations.

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3. Diagnosis

LRH Electrical Ltd exhibits symptoms of financial strain primarily due to:

• Negative working capital: The company’s current liabilities exceed its current assets by over £11,000. This is akin to a patient struggling with short-term liquidity, indicating it may have difficulty meeting immediate financial obligations without external support.

• Eroding net assets: Net assets have shrunk dramatically from £13,835 in 2020 to just £425 in 2024. This represents a “loss of financial vitality,” where accumulated retained earnings (profit and loss reserves) are nearly depleted. It suggests the business is either incurring losses or carrying significant liabilities.

• High director loans: The director has provided substantial loans (£37,433) to the company, which may have been necessary to keep the business operational. While this can be a lifeline, it also points to underlying cash flow problems.

• Modest fixed assets and cash: The tangible asset base is modest and depreciating, and cash reserves, while increased from £152 to £5,359, remain low relative to liabilities.

• No audit requirement and small company status: As a small private limited company, the accounts are unaudited, which may limit external scrutiny but is typical for the size.

Overall, the company resembles a patient with a chronic liquidity illness, supported by an informal loan from its director but showing limited recovery signs in working capital and equity.

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4. Recommendations

To improve the financial wellness of LRH Electrical Ltd, consider the following steps:

1. Improve Cash Flow Management:

   • Tighten debtor collection processes to convert outstanding trade debtors into cash faster.
   • Negotiate extended payment terms with suppliers to alleviate immediate cash outflows.

2. Reduce Current Liabilities:

   • Prioritize paying off or restructuring short-term debts to reduce the negative working capital gap.
   • Explore formal financing options with better terms to convert short-term liabilities into longer-term debts.

3. Review Director Loans:

   • Formalize the director loan agreements to ensure clear repayment terms and assess the impact on company solvency.
   • Investigate opportunities to convert director loans into equity to strengthen the balance sheet.

4. Cost Control and Profitability:

   • Review operational expenses to improve profitability and build retained earnings.
   • Consider business development strategies to increase turnover and cash inflows.

5. Regular Financial Monitoring:

   • Implement monthly cash flow forecasts and financial reviews to detect and address liquidity issues early.
   • Engage with an accountant or financial advisor for ongoing support and compliance.

6. Consider Equity Injection:

   • If feasible, inject additional capital to restore equity levels and provide a financial buffer against shocks.

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Summary

LRH Electrical Ltd currently faces financial challenges marked by negative working capital, dwindling net assets, and reliance on director loans to sustain operations. These "symptoms" suggest liquidity stress and reduced financial resilience. Immediate focus on cash flow improvement, liability management, and strengthening the equity base is critical to restore healthy financial "vital signs" and ensure future viability.

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