PENTAGON ACADEMY LIMITED

Executive Summary

Pentagon Academy Limited shows a sturdy financial position with strong working capital and positive equity, but lacks liquid cash on hand and depends heavily on a director loan receivable. The company's financial health is good (grade B), though improving cash reserves and managing director loan exposure will enhance liquidity and reduce risk. Continued monitoring and disciplined financial management will support sustainable growth.

PENTAGON ACADEMY LIMITED - Analysis Report

Company Number: 13614961

Analysis Date: 2025-07-29 17:15 UTC

Financial Health Assessment of Pentagon Academy Limited (as of 31 May 2024)

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1. Financial Health Score: B

Explanation:
Pentagon Academy Limited demonstrates a solid financial footing with strong net current assets and positive shareholder equity. While the company is young (incorporated in 2021) and relatively small, it maintains a healthy working capital position. However, the absence of cash on hand at the latest reporting date and the significant debt owed by a director raise some cautionary flags. Overall, the financial health is good but not without areas for closer management attention.

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2. Key Vital Signs

Metric	2024 Value	Interpretation
Current Assets	£63,053	Moderate level of short-term assets, primarily debtors.
Cash	£0	No liquid cash available at year-end, a potential liquidity risk ("cash flow cold").
Debtors	£63,053	High proportion of current assets tied up in amounts owed, largely due from a director.
Current Liabilities	£2,261	Very low short-term obligations ("low symptom of financial distress").
Net Current Assets	£60,792	Strong working capital position indicating short-term solvency.
Shareholders Funds (Equity)	£60,792	Positive and growing equity base, indicating retained earnings and capital support.
Director's Loan Account	£63,053 (asset to company)	Significant amount owed by director, interest charged, repayable on demand; requires monitoring.

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3. Diagnosis: Financial Health Analysis

• Working Capital and Liquidity: The company has a robust working capital position, with net current assets far exceeding current liabilities. This suggests the company can cover its short-term debts comfortably. However, the complete lack of cash at the year-end is a concerning symptom. It means the business may be relying heavily on debtor collections or director loans to maintain liquidity.

• Debtors and Director's Loan: The bulk of current assets are in the form of debtors (£63k), which corresponds exactly with the director's loan balance. This indicates that the company has effectively lent money to its director, creating a receivable on the balance sheet. While this is legal and common in small private companies, it represents a concentration risk and potential liquidity bottleneck if the director cannot repay promptly.

• Profitability and Retained Earnings: Retained earnings have increased from £56k to £60.7k, suggesting profitability or capital injections, though no income statement was provided. The steady growth in equity is a positive sign of underlying business value accumulation.

• Company Size and Risk Profile: As a small private limited company in the education sector (SIC 85590), Pentagon Academy Limited’s financial statements are exempt from audit, which limits external financial scrutiny. The small size and single employee/director structure imply dependency on key individuals.

• No Overdue Filings: The company is compliant with its filing obligations, a good sign of management discipline and regulatory compliance.

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4. Recommendations: Prescriptions for Financial Wellness

1. Improve Cash Reserves:
   Aim to build a cash buffer to avoid liquidity strain. Healthy cash flow ("blood flow" of the business) is crucial to meet unexpected expenses and smooth operations. Consider timing of cash collections and payments to avoid zero cash balances.

2. Monitor Director’s Loan Account:
   The significant director loan balance, while currently an asset, is a potential stress point. Establish clear repayment plans or convert some of this loan into equity if appropriate. This reduces the risk of financial "blockage" if the director cannot repay quickly.

3. Diversify Asset Base:
   Reduce over-reliance on director loans by increasing trade receivables from customers or other liquid assets. This will improve financial resilience.

4. Prepare Profit and Loss Statements Annually:
   Although exempt from audit, maintaining clear profit and loss reporting will help track business performance and identify early signs of distress.

5. Plan for Growth and Capital Needs:
   As the company grows, consider whether additional capital injections, credit lines, or external financing might be needed to sustain operations and invest in development.

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