Financial Health Assessment: New Room Style Limited

1. Financial Health Score: B

Grade: B — This patient has made a remarkable recovery from a critical condition. The business was technically insolvent as recently as 2020 (negative net assets of £-3,634), but has since staged a strong rehabilitation. Net assets have grown to £52,317, cash reserves are robust at £146,412, and long-term debt is virtually extinguished. However, some underlying conditions require monitoring — notably high current liabilities relative to current assets, and a significant "other creditors" balance that clouds the full diagnostic picture. The prognosis is cautiously optimistic.

2. Key Vital Signs

Ten-Year Recovery Trajectory

3. Diagnosis

What the Financial Data Reveals About Business Health

A Remarkable Recovery Patient

New Room Style Limited's financial history reads like a patient who was admitted to intensive care and has since made a full recovery. Between 2018 and 2019, the business was technically insolvent — liabilities exceeded assets, and cash reserves had dwindled to under £10,000. This was a business on life support.

The turnaround since 2020 has been impressive. Net assets have grown from negative territory to over £52,000, cash has multiplied nearly 15 times from its 2018 low, and long-term bank loans have been virtually paid off (down from £10,207 to just £207). This suggests the directors injected capital or restructured debts around 2020-2021, and the business has been generating profits consistently since.

Symptoms Requiring Attention

1. The "Other Creditors" Lump — A Potential Underlying Condition

The most significant diagnostic concern is the £109,492 classified as "other creditors" within current liabilities. This represents 62% of all current liabilities and is up 28% from £85,393 in 2025. Without further disclosure, this could represent:

• Director loans (which may be subordinated and less concerning)
• Trade finance or factoring arrangements
• Accrued expenses or deferred income
• Related party balances

Medical analogy: This is like a patient reporting "general discomfort" without specifying the location. It requires further investigation to rule out anything serious.

2. Quick Ratio Below 1.0 — A Mild Liquidity Concern

If we exclude stock (which takes time to convert to cash in the retail flooring trade), the quick ratio stands at 0.83. This means the business cannot immediately cover all current liabilities from cash and trade debtors alone. For a carpet and flooring retailer where stock turnover may be slower, this warrants monitoring, though the strong cash position provides reassurance.

3. Rising Current Liabilities

Current liabilities have increased from £150,037 to £176,483 (up 17.6%), outpacing the growth in current assets (up 14.4%). This is primarily driven by the increase in "other creditors." If this trend continues, it could strain working capital.

4. Stock Levels

Stock at £60,585 represents 29.2% of total assets. For a specialist retail business, this is not unusual, but it does mean nearly a third of the business's asset value is tied up in inventory that must be sold to generate cash.

Positive Indicators

• Cash is king: £146,412 represents 70.7% of total assets — an exceptionally liquid position
• Debt nearly eliminated: Long-term liabilities reduced by 98% to just £207
• Consistent profitability: Retained earnings have grown every year since 2020, indicating the business generates profits
• Growing workforce: Employee count increasing from 8 to 9 suggests confidence in future demand
• Filing compliance: All filings are up to date with no overdue items — good corporate hygiene

4. Recommendations

Prescribed Treatment Plan

1. Investigate and Clarify "Other Creditors" (Priority: High)

The £109,492 other creditors balance requires diagnosis. If this includes director loans, these should be formally documented with clear repayment terms. If it represents trade finance or other obligations, understanding the repayment timeline is essential for cash flow planning.

Action: Request a detailed breakdown of other creditors from management and review any related party disclosures.

2. Build a Cash Flow Forecast (Priority: High)

With current liabilities exceeding quick assets, the business should develop a detailed 12-month cash flow forecast. This is the financial equivalent of a stress test — understanding how the business copes under various scenarios.

3. Monitor the Current Ratio Trend (Priority: Medium)

The current ratio has slipped from 1.21 to 1.17. While still above 1.0, the trend needs watching. A target of maintaining the current ratio above 1.2 would provide a healthier buffer.

4. Consider Stock Management Improvements (Priority: Medium)

At £60,585, stock represents a significant capital commitment. Review stock turnover rates and identify slow-moving or obsolete lines. In the flooring trade, discontinued patterns and sizes can become dead weight on the balance sheet.

5. Protect Cash Reserves (Priority: Medium)

The £146,412 cash position is a strength, but it should not be taken for granted. Ensure that cash is: - Held in interest-bearing accounts where possible - Not gradually eroded by drawings or non-essential expenditure - Maintained at a level that covers at least 3 months of operating costs

6. Formalise Financial Planning (Priority: Low-Medium)

As the business grows, consider moving beyond the "small companies" filing regime to prepare full accounts with a profit and loss statement. This provides better visibility into trading performance and supports better decision-making.

7. Review Director Remuneration Strategy (Priority: Low)

With two directors who are also the shareholders, ensure that the balance between salaries, dividends, and retained profits is optimised for both tax efficiency and business resilience.

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