POWER ELECTRONIC MEASUREMENTS LIMITED
Company number 02631230 · Monitor this company
This analysis was written by an AI from the company's public filings. It may contain errors or omissions and is not financial or professional advice.
Credit Analysis: Power Electronic Measurements Limited
1. Credit Opinion: CONDITIONAL
Reasoning: The company presents a fundamentally strong balance sheet with net assets of £4.24M and healthy liquidity ratios, but exhibits a concerning downward trajectory. Retained earnings have declined by approximately £2.44M since the 2022 peak, indicating sustained trading losses. Cash reserves have fallen from £7.41M to £2.47M over the same period—a 66.6% reduction. While the current position remains serviceable, the trend requires investigation before unsecured exposure can be approved. A group guarantee from Pem Holdings Ltd should be considered given the 75%+ ownership structure and the likelihood of intercompany financial arrangements.
2. Financial Strength
Balance Sheet Composition (2024):
| Item | 2024 | 2023 | Movement |
|---|---|---|---|
| Fixed Assets | £598,907 | £648,319 | -7.6% |
| Current Assets | £4,878,565 | £5,979,469 | -18.4% |
| Current Liabilities | £1,233,598 | £1,386,802 | -11.1% |
| Net Assets | £4,235,534 | £5,222,121 | -18.9% |
Key Observations:
- Gearing is minimal. There are no long-term borrowings visible; all liabilities fall due within one year. The total liabilities-to-net-assets ratio stands at 29.1%, which is conservative.
- Retained earnings erosion. The drop from £5,221,962 to £4,235,375 represents a loss of £986,587 for the 2024 financial year. This follows a pattern of declining net assets since 2022 (£6.68M → £4.24M).
- Capital base is thin. Share capital of just £59 and capital redemption reserve of £100 means virtually all equity is retained earnings—no fresh capital has been injected.
- Stock build-up is noteworthy. Inventory increased 25.4% from £1.39M to £1.74M while trade debtors fell 20.5% from £828,893 to £659,459. This may signal slowing demand or deliberate stock accumulation ahead of anticipated orders. Stock now represents 35.8% of current assets, up from 23.3%—a shift that warrants scrutiny for potential obsolescence risk.
Long-term Trajectory: Net assets grew steadily from £2.57M (2015) to £6.68M (2022), demonstrating a historically successful business. The recent reversal is significant but comes from a position of accumulated strength.
3. Cash Flow Assessment
Liquidity Position:
| Metric | 2024 | 2023 |
|---|---|---|
| Current Ratio | 3.95x | 4.31x |
| Quick Ratio (excl. stock) | 2.54x | 3.31x |
| Cash as % of Current Assets | 50.7% | 62.9% |
Cash Trajectory Analysis:
| Period | Cash Balance | Change |
|---|---|---|
| Sep 2019 | £5,030,659 | — |
| Sep 2020 | £4,909,058 | -2.4% |
| Sep 2021 | £5,399,802 | +9.9% |
| Sep 2022 | £7,410,764 | +37.2% |
| Dec 2023 | £3,758,959 | -49.3% |
| Dec 2024 | £2,474,534 | -34.2% |
Critical Points:
- The 2022 cash spike to £7.41M appears anomalous—possibly reflecting a large contract receipt, deferred supplier payments, or a timing benefit from the year-end change (September to December). The subsequent decline may partly represent normalisation.
- However, the cash burn from 2022 to 2024 totals approximately £4.94M over what appears to be roughly 27 months. Even allowing for the extended 15-month 2023 period, this is substantial.
- Working capital remains positive. Net current assets of £3.64M provide a meaningful buffer. The company can meet its near-term obligations comfortably.
- No visible debt facilities. The absence of long-term creditors and the minimal share capital suggest the business has historically been funded from retained profits and cash generation. There is capacity to take on term debt if required.
4. Monitoring Points
Immediate Priorities:
-
Profitability trajectory. Request management accounts to understand whether 2024's £987K loss is structural or exceptional. The small company filing regime means we have no visibility on turnover, gross margin, or operating costs.
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Cash outflow explanation. Determine the composition of the £1.28M cash reduction in 2024—how much relates to trading losses versus capital expenditure, dividend extraction, or intercompany transfers to Pem Holdings.
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Stock quality and ageing. With inventory up 25.4% and revenue likely declining (based on reduced debtors), obtain a stock ageing report. Electronic test equipment can become obsolete quickly.
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Intercompany exposure. Pem Holdings Ltd (75%+ shareholder) may have related-party balances not separately disclosed in the filleted accounts. Understand whether cash has been upstreamed to the parent or whether group support is available.
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Year-end change implications. The switch from September to December year-end creates a 15-month period for 2023. Ensure period-on-period comparisons are adjusted accordingly.
Ongoing Covenants (if facility granted):
- Minimum net assets ≥ £3.0M
- Current ratio ≥ 2.0x
- No dividend or intercompany payments without bank consent if net assets fall below £3.5M
- Annual provision of full management accounts
Sector Consideration: The company operates in electronic measuring/test equipment manufacturing (SIC 26511/26512)—a niche but technically demanding sector. Longstanding operation since 1991 suggests established market position, but the sector is subject to cyclical demand and technological obsolescence.