ROTECH SYSTEMS AND ENCODERS LTD

Executive Summary

Rotech Systems And Encoders Ltd shows a healthy start with positive net assets and working capital, reflecting financial solvency and operational potential for a new business. However, the relatively high short-term liabilities and dependence on director loans signal the need for careful cash flow management and stronger financial controls. With focused actions to improve liquidity and reporting, the company is positioned to strengthen its financial health and sustain growth.

ROTECH SYSTEMS AND ENCODERS LTD - Analysis Report

Company Number: 14739461

Analysis Date: 2025-07-29 12:59 UTC

Financial Health Assessment for Rotech Systems And Encoders Ltd (as at 31 March 2024)

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1. Financial Health Score: B

Explanation:
Rotech Systems And Encoders Ltd, a newly incorporated company in 2023, demonstrates a promising start with positive net assets and working capital, reflecting a generally healthy financial position for a first-year business. However, the relatively high current liabilities compared to current assets and modest net asset base suggest some caution. The company’s financial "vital signs" indicate stability but also symptoms requiring attention to maintain and improve financial wellness.

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2. Key Vital Signs

Metric	Value (£)	Interpretation
Current Assets	164,789	Adequate liquid and near-liquid resources to meet short-term obligations.
Cash & Cash Equivalents	52,502	Healthy cash reserves providing liquidity cushion.
Debtors (Trade Receivables)	105,801	Significant outstanding sales revenue yet to be collected; strong revenue generation but requires effective credit control.
Current Liabilities	135,645	Obligations due within one year; somewhat high compared to current assets, indicating a tight short-term liquidity position.
Net Current Assets (Working Capital)	29,144	Positive but modest working capital, suggesting a manageable buffer to cover short-term debts.
Net Assets (Equity)	37,670	Positive shareholders’ equity indicating the company’s net worth is above zero, a sign of solvency.
Share Capital	100	Minimal initial investment, typical for a new small company.
Retained Earnings (P&L Reserve)	37,570	Accumulated profits retained within the business, showing early profitability or capital injections.

Additional Details:

• Tangible fixed assets stand at £8,977, indicating some investment in plant, machinery, or equipment needed for operations.
• Provisions for liabilities (deferred tax) are minimal (£451), showing no significant tax burdens currently.
• Directors’ current accounts show £43,750, reflecting loans or funds due to directors from the company, which should be monitored.

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3. Diagnosis: Financial Condition Overview

Strengths (Healthy Signs):

• Positive Net Assets: The company’s net assets of £37,670 indicate it is solvent and owns more than it owes, a fundamental sign of financial health.
• Positive Working Capital: Net current assets of £29,144 imply that the business can cover its short-term liabilities without distress.
• Cash Reserves: Holding over £52k in cash balances provides liquidity to handle immediate expenses, a critical “heartbeat” of the business.
• Strong Debtor Base: High trade debtors suggest the company is generating sales, but this also introduces a risk if collections slow.

Symptoms of Financial Stress (Areas to Monitor):

• Current Liabilities Pressure: At £135,645, current liabilities are high relative to current assets, which could indicate cash flow pressure if receivables are delayed or unpaid. This is akin to the business having a slightly elevated “blood pressure” in its liquidity.
• Dependence on Directors’ Loans: The sizeable amount owed to directors (£43,750) can be a double-edged sword—while it provides funding flexibility, it could expose the company to risk if these loans are called in or if they represent cash flow support rather than operational profitability.
• No Income Statement Provided: Absence of detailed profit/loss data limits insight into operational efficiency and profitability trends; this is a missing vital sign that would help diagnose underlying health more precisely.

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4. Recommendations: Steps to Improve Financial Wellness

1. Strengthen Cash Flow Management:

• Accelerate debtor collections to improve liquidity and reduce reliance on director loans. Consider clear credit terms and proactive follow-up on outstanding invoices to avoid cash flow “arrhythmias.”
• Closely monitor and manage payables to maintain good supplier relationships without straining cash resources.

2. Review and Manage Current Liabilities:

• Explore options to refinance or stagger short-term obligations to reduce pressure on immediate cash needs, smoothing the company’s financial “pulse.”
• Assess if any creditor balances can be renegotiated for longer terms or discounts.

3. Build Reserves and Capital Cushion:

• Aim to increase retained earnings through profitable operations to build a stronger equity base, enhancing financial resilience.
• Consider capital injections if necessary to fortify working capital and support growth.

4. Enhance Financial Reporting:

• Prepare and maintain detailed income statements and cash flow forecasts regularly to detect early symptoms of financial distress and enable timely interventions.
• Engage with financial advisors or accountants to establish robust budgeting and financial controls.

5. Monitor Directors’ Current Accounts:

• Treat funds owed to directors transparently and ensure these are documented with clear terms to avoid surprises and maintain stakeholder confidence.

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