NOVATHERM LTD

Executive Summary

NOVATHERM LTD is financially stable, with improving cash reserves and growing equity indicating good business health. Key areas for improvement include managing receivables and payables to ensure smooth cash flow. Overall, the company is well-positioned for future growth with prudent financial management.

NOVATHERM LTD - Analysis Report

Company Number: 12880752

Analysis Date: 2025-07-29 20:50 UTC

Financial Health Assessment for NOVATHERM LTD (As of 31 December 2023)

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1. Financial Health Score: B

Explanation:
NOVATHERM LTD demonstrates a solid financial footing with consistent growth in net assets and positive working capital over the past four years. The company’s liquidity and solvency positions are stable, though some areas such as debtor management and creditor levels warrant monitoring to maintain a healthy cash flow. Overall, the business is financially sound but would benefit from specific improvements to elevate its financial wellness to an "A" grade.

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2. Key Vital Signs

Metric	2023 Value (£)	Interpretation
Current Assets	609,230	Healthy level showing sufficient liquid and near-liquid resources to meet short-term obligations.
Cash at Bank	175,864	Increased significantly from prior years, indicating improved cash reserves — a positive sign.
Debtors	235,800	Slightly decreased but still substantial; indicates some capital tied up in receivables.
Current Liabilities	456,231	Increased notably; requires cautious management to avoid liquidity strain.
Net Current Assets (Working Capital)	152,999	Positive working capital, implying the company can cover short-term debts and operational needs.
Net Assets (Equity)	128,660	Growth from £101.5k in 2022 to £128.7k in 2023, signaling accumulation of retained earnings.
Long-term Debt (Bank Loans >1 year)	27,083	Stable but notable; manageable given current asset base but should be monitored.
Fixed Assets (Net Book Value)	3,659	Minimal investment in long-term assets, typical for a wholesale business.

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3. Diagnosis: What the Numbers Reveal

Liquidity and Cash Flow:
The company shows "healthy cash flow" with cash reserves increasing over the last year (£40k to £176k), indicating enhanced ability to meet immediate obligations. Positive net current assets confirm the business is not under short-term financial distress.

Receivables Management (Debtors):
Debtors remain comparatively high (£235,800), which could be a "symptom of cash flow bottlenecks" if collection terms are extended or payments delayed. The slight reduction from prior years is encouraging but ongoing attention is advised to avoid excessive capital being tied up.

Payables and Creditors:
Current liabilities increased sharply to £456,231, driven largely by trade creditors (£366,342). This suggests the company is leveraging supplier credit to support operations, which is common but requires careful management to maintain supplier relations and avoid liquidity strain.

Profit Retention and Equity:
The growth in shareholders’ funds from £101,480 to £128,660 reflects retained profits, indicating the company is "building financial resilience." The low level of fixed assets is typical for a wholesale company and not a concern but means the business is likely asset-light and relies heavily on working capital.

Debt and Solvency:
Long-term bank loans have decreased slightly but remain a factor (£27,083). The company’s strong equity base and positive working capital suggest solvency is not currently a concern.

Operational Efficiency:
With an average of 5 employees and turnover consistent with the small company category, operational scale is modest. The financials hint at stable operations without large capital expenditure needs.

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4. Recommendations: Specific Actions to Improve Financial Wellness

• Enhance Debtor Collections:
  Implement stricter credit control policies and proactive collection efforts to reduce days sales outstanding, freeing up cash tied in receivables.

• Manage and Monitor Creditors:
  While supplier credit is beneficial, ensure payment terms are optimised to avoid late payments or damaging supplier relationships.

• Cash Flow Forecasting:
  Regular, detailed cash flow forecasts should be maintained to anticipate any liquidity crunches and manage working capital efficiently.

• Consider Asset Investment Strategy:
  Evaluate whether investing in fixed assets or technology could improve operational productivity or reduce costs in the medium term.

• Maintain Strong Equity Buffer:
  Continue to build retained earnings prudently to provide a buffer against future uncertainties.

• Review Financing Structure:
  Assess the cost and terms of existing bank loans to explore refinancing options if beneficial, aiming to reduce interest costs or extend maturities.

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Medical Analogy Summary:

NOVATHERM LTD’s financial health shows a "steady heartbeat" with robust liquidity and growing equity. The "symptoms" such as elevated debtors and growing short-term liabilities indicate areas where the "patient" could benefit from lifestyle adjustments — in this case, tighter credit control and creditor management. With attentive care, the prognosis is positive, supporting sustainable growth and healthy financial endurance.

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