SFS ELECTROTECH LTD

Executive Summary

SFS Electrotech Ltd is financially stable with positive equity growth but faces liquidity challenges due to negative working capital. Improving cash flow management and reducing short-term liabilities are critical to avoid financial strain. With appropriate actions, the company can strengthen its financial health and support sustainable growth.

SFS ELECTROTECH LTD - Analysis Report

Company Number: 13021737

Analysis Date: 2025-07-29 19:28 UTC

Financial Health Assessment: SFS ELECTROTECH LTD (As of 30 November 2023)

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1. Financial Health Score: C

Explanation:
SFS Electrotech Ltd shows mixed financial signals. The company maintains positive net assets and shareholders’ funds, indicating a cushion of equity. However, persistent negative net current assets (working capital deficit) and relatively tight liquidity pose symptoms of financial strain. The business is not in immediate distress but requires close monitoring and proactive management to avoid liquidity issues. Hence, the grade “C” reflects a moderate financial health status with some caution warranted.

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2. Key Vital Signs

Metric	Latest (FY 2023)	Interpretation
Net Assets (Equity)	£4,195	Positive and improving over 2 years; sign of shareholder equity and business value.
Net Current Assets	-£1,000	Negative working capital; current liabilities exceed current assets, indicating liquidity pressure.
Cash and Cash Equivalents	£5,340	Reasonable cash buffer but only covers about 44% of current liabilities (£12,232).
Current Liabilities	£12,232	Short-term debts are significant relative to current assets.
Fixed Assets	£5,195	Small asset base, consistent with business type (repair & retail).
Share Capital	£500	Nominal capital; company relies mostly on retained earnings.
Retained Earnings	£3,695	Accumulated profits provide a buffer for losses or reinvestment.
Employee Count	2 (average)	Small scale operation, typical for micro/small enterprise.

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3. Diagnosis: What the Financial Data Reveals

• Liquidity Symptoms: The company consistently shows negative net current assets (working capital deficit) from 2021 through 2023, although the deficit has improved from -£4,188 in 2022 to -£1,000 in 2023. This indicates the company is facing liquidity challenges, with short-term obligations exceeding readily available current assets. While cash on hand (£5,340) is a positive sign, it covers less than half of the current liabilities, suggesting tight day-to-day cash flow.

• Capital Structure: Positive net assets and shareholders’ funds growing from £1,924 in 2022 to £4,195 in 2023 indicate retained earnings are building equity, a healthy sign. The small share capital (£500) means most value is in retained earnings rather than initial investment.

• Asset Base: Fixed assets have decreased slightly from £6,112 in 2022 to £5,195 in 2023, possibly reflecting asset disposals or depreciation. Given the company’s industry (repair of computers and retail sale of mobile phones), a modest asset base is typical.

• Operating Scale: With only 2 employees on average, the company is a micro-sized operation, limiting operational complexity but also raising risk from dependence on few resources.

• No Overdue Filings or Legal Issues: The company is active, compliant with filing deadlines, and not in liquidation or administration, indicating regulatory health.

• Profit & Loss Insights: The absence of an income statement in the filing limits insight on profitability and operational efficiency, but the increase in retained earnings suggests some profitability or capital injection.

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4. Recommendations: Steps to Improve Financial Wellness

• Improve Liquidity Management: Focus on reducing current liabilities or increasing current assets to establish positive working capital. Strategies could include negotiating better payment terms with suppliers, accelerating customer receivables, or managing inventory levels more efficiently to free up cash.

• Enhance Cash Flow Monitoring: Implement regular cash flow forecasting and budgeting to anticipate shortfalls and avoid surprises. Maintaining a healthy cash buffer is crucial for meeting short-term obligations.

• Explore Capital Injection or Financing: Consider raising additional equity capital or securing short-term financing to strengthen liquidity and support growth or operational needs, especially if working capital challenges persist.

• Profitability Focus: Without detailed profit and loss data, it is advisable to review cost structures, pricing strategies, and sales performance to ensure the business is generating sufficient operating profit to sustain and grow equity.

• Operational Efficiency: With a small team, cross-training and process improvements can help increase productivity and reduce operational risks due to personnel dependency.

• Prepare for Growth Cautiously: Expansion should be supported by a solid financial base. Avoid overextending credit or inventory purchases which could exacerbate liquidity issues.

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Medical Analogy Summary:

SFS Electrotech Ltd exhibits some "symptoms of financial distress" primarily in its working capital (liquidity) "vitals." However, the "heart" of the business—its equity base—is "beating" and improving, which is a positive sign of underlying health. The company is currently stable but "vulnerable" to cash flow problems, akin to a patient with borderline blood pressure who must adjust lifestyle (financial management) to avoid a crisis.

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