ON THE EDGE LIMITED
Executive Summary
ON THE EDGE LIMITED’s financial health reveals critical liquidity and equity challenges, with negative working capital and near depletion of net assets signaling financial distress. Immediate actions to improve cash flow, control costs, and consider capital restructuring are essential to stabilize the company’s position and avoid insolvency risks.
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This analysis is opinion only and should not be interpreted as financial advice.
ON THE EDGE LIMITED - Analysis Report
Financial Health Assessment of ON THE EDGE LIMITED
1. Financial Health Score: D
Explanation:
The company exhibits significant signs of financial distress, primarily due to persistent negative working capital and a dramatic erosion of net assets over recent years. While still operational and meeting filing deadlines, the balance sheet reveals a precarious liquidity position and minimal shareholder equity. This score reflects a need for urgent financial restructuring and improved cash flow management to avoid insolvency risks.
2. Key Vital Signs
Metric | 2024 Value (£) | Interpretation |
---|---|---|
Fixed Assets | 29,758 | Relatively low asset base, modest investment in long-term resources. |
Current Assets | 13,564 | Limited short-term resources available for daily operations. |
Current Liabilities | 43,321 | High short-term debts creating liquidity pressure. |
Net Current Assets (Working Capital) | -29,757 | Negative working capital indicates the company cannot cover short-term liabilities with current assets—symptom of liquidity stress. |
Net Assets (Shareholders’ Equity) | 1 | Drastic reduction from £7,224 in 2023 to just £1 in 2024, showing near depletion of company’s net worth—critical warning sign. |
Shareholders Funds | 1 | Equity buffer almost wiped out, increasing risk of insolvency. |
Additional Notes:
- The company’s negative working capital is like a patient with a dangerously low blood pressure; the business lacks the immediate liquidity "oxygen" to sustain day-to-day operations comfortably.
- The sharp decline in net assets suggests ongoing losses or write-downs, indicating the business "body" is deteriorating internally.
- Director loans show some complexity: advances to directors have been largely repaid or reduced, but this reflects internal financial juggling rather than external financial health.
3. Diagnosis
ON THE EDGE LIMITED is currently in a fragile financial state characterized by:
Liquidity Crisis: The negative net current assets (-£29,757) reveal that the company’s short-term obligations exceed its short-term resources significantly, a classical symptom of cash flow distress. This condition can lead to an inability to pay suppliers or creditors on time, which may escalate into insolvency if unaddressed.
Equity Erosion: The near wipeout of net assets from £7,224 to £1 suggests accumulated losses or write-offs over the year, indicating the company’s financial "immune system" is severely weakened. This means the business has very little financial cushion to absorb further losses or shocks.
Asset Base Shrinkage: Fixed assets have decreased from £39,996 to £29,758, possibly due to disposals or impairments, reducing the company's long-term stability and capacity to generate future revenue.
Operational Scale: As a micro-entity with only about 2 employees, the company operates on a very small scale, which may limit its ability to weather financial storms or invest in growth.
In medical terms, the company is showing "symptoms of distress" with a declining "vital sign" profile—its financial health is compromised, and without intervention, the prognosis may worsen.
4. Recommendations
To improve ON THE EDGE LIMITED’s financial wellness and stabilize its position, the following steps are advised:
Improve Liquidity Management:
- Accelerate collection of receivables and optimize inventory to boost current assets.
- Negotiate with creditors for extended payment terms to reduce immediate liabilities.
- Consider short-term financing options carefully to bridge liquidity gaps but avoid excessive debt.
Cost Control and Profitability Enhancement:
- Conduct a thorough review of operating expenses to identify and cut non-essential costs.
- Explore pricing strategies or diversify services/products to improve margins.
- Monitor cash flow closely with regular forecasting to anticipate and manage shortfalls.
Capital Injection or Restructuring:
- Engage shareholders or investors to inject fresh equity capital to rebuild net assets and provide financial cushioning.
- If equity injection is not feasible, explore restructuring options to manage liabilities and improve balance sheet strength.
Strategic Business Review:
- Assess the viability of current business activities given the SIC code (Other manufacturing) and explore potential pivot or niche markets with better profitability.
- Invest cautiously in fixed assets to avoid further asset erosion and preserve cash.
Governance and Financial Oversight:
- Strengthen financial controls and reporting to detect early "symptoms" of distress in future periods.
- Directors should maintain transparent communication with stakeholders about financial challenges and plans.
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