S GORDON MECHANICAL LTD

Executive Summary

S Gordon Mechanical Ltd exhibits a mixed financial health profile with positive asset growth but emerging liquidity stress due to increased finance lease obligations. The company must focus on improving cash flow management and controlling financial commitments to stabilize its position. With proactive measures, the outlook can improve as the business matures.

S GORDON MECHANICAL LTD - Analysis Report

Company Number: SC734405

Analysis Date: 2025-07-29 13:54 UTC

Financial Health Assessment for S Gordon Mechanical Ltd (as of 30 June 2024)

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1. Financial Health Score: C

Explanation:
The company shows some concerning signs in its financial "vital signs," particularly a negative net working capital and significant lease obligations which amount to a high financial leverage. While shareholders' funds remain positive and the company has tangible fixed assets, the strain on short-term liquidity and increased liabilities suggest moderate financial stress. The score reflects a company that is operational but facing symptoms of financial strain that require attention.

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2. Key Vital Signs

Metric	2024 Value	Interpretation
Fixed Assets	£15,175	Healthy investment in long-term assets, an increase from prior years indicating growth or capital investment.
Current Assets	£5,971	Mostly cash with zero trade debtors, indicating low receivables but also possibly low ongoing sales or delayed invoicing.
Debtors	£0	Unusual drop from previous year (£12,718), may reflect slower sales or change in credit policy.
Current Liabilities	£7,498	Increased significantly due to lease obligations; exceeds current assets leading to negative net working capital.
Net Current Assets (Working Capital)	-£315	Negative working capital signals liquidity pressure; company may struggle to meet short-term obligations from current assets.
Total Assets less Current Liabilities	£14,860	Positive, showing that after covering short-term debts, company assets still exceed liabilities.
Net Assets (Equity)	£7,362	Positive equity, but decreased from £13,750 in 2023 indicating net erosion of retained profits or increased liabilities.
Finance Lease Obligations (Total)	£10,947	Substantial lease-based debt, creating long-term financial commitments; a symptom of financial leverage.
Share Capital	£1	Minimal, typical for small private companies.

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3. Diagnosis: Financial Health Overview

• Liquidity Distress: The negative net working capital (-£315) is a primary symptom of liquidity stress, meaning the company's current assets are insufficient to cover current liabilities. This can lead to cash flow problems, risking the ability to pay suppliers or creditors on time.

• Increased Leverage: The company has taken on substantial finance lease obligations (£10,947), which appear for the first time in 2024 accounts. These leases increase financial risk as they represent fixed payment commitments both short and long term. This is akin to a patient developing high blood pressure—it's a significant risk factor needing management.

• Asset Base Growth vs. Profit Erosion: The fixed assets have increased markedly (from £1,643 to £15,175), suggesting capital investment, possibly financed by lease agreements. However, net assets (equity) have halved from £13,750 to £7,362, indicating that despite asset growth, accumulated profits or reserves have diminished. This may suggest operating losses or high depreciation/finance costs impacting retained earnings.

• Operational Signals: Zero debtors in 2024 compared to £12,718 in 2023 might indicate slower sales, change in credit terms, or timing differences in revenue recognition. The lack of employees reported suggests a possibly very small or owner-led operation, which may limit capacity and growth prospects.

• No Overdue Filings: The company is up to date with statutory accounts and confirmation statements, a positive sign of good governance and compliance.

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4. Recommendations for Financial Wellness Improvement

• Improve Liquidity Management:

  • Closely monitor cash flow and explore ways to increase current assets or reduce current liabilities.
  • Negotiate better payment terms with suppliers and seek to shorten receivables cycle if applicable.

• Review Lease Obligations:

  • Evaluate the necessity and terms of finance leases to reduce fixed financial commitments.
  • Explore refinancing options or asset purchases that could lessen lease burdens.

• Enhance Revenue and Receivables:

  • Investigate the cause of zero trade debtors in the latest year.
  • If sales have declined, implement strategies to boost revenue streams or diversify client base.
  • Consider more flexible credit policies to manage working capital better.

• Cost Control and Profitability:

  • Assess operating costs and depreciation impact to identify opportunities to improve margins.
  • Consider financial forecasting to anticipate future cash needs and avoid surprises.

• Strategic Planning:

  • Given the company's young age (incorporated 2022), develop a clear business plan with milestones focusing on sustainable growth and financial stability.
  • Engage with financial advisors or accountants regularly to monitor financial health indicators proactively.

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Medical Analogy Summary:

The company shows "symptoms of distress" in its liquidity and financial leverage—akin to a patient with elevated blood pressure and reduced blood flow. While the "bones" (fixed assets) are growing strong, the "circulatory system" (working capital) is under strain, risking operational disruptions. Immediate lifestyle changes (financial management interventions) are needed to restore balance and health.

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