SHEERS LIMITED
Company number 01347974 · 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 Assessment: SHEERS LIMITED
1. Credit Opinion: CONDITIONAL APPROVE
Sheers Limited presents a fundamentally sound credit profile with strong liquidity and a long trading history (incorporated 1978). The company demonstrates a healthy balance sheet with net assets of £640k and cash holdings that exceed total current liabilities. However, the conditional rating reflects concerns around the significant decline in retained earnings during the latest period (down approximately £240k), the shortened 11-month accounting period making trend analysis difficult, and the company's status as a subsidiary where parent entity financial health is relevant. Approval recommended subject to satisfactory explanation of the earnings decline and confirmation of parent company support.
2. Financial Strength
Balance Sheet Summary (Year Ending 31 March 2021):
| Item | £ | Assessment |
|---|---|---|
| Fixed Assets | 74,839 | Modest, asset-light business |
| Current Assets | 1,112,334 | Strong |
| - Stocks/WIP | 472,890 | High relative to debtors |
| - Debtors | 19,695 | Unusually low; trade debtors show credit balance |
| - Cash | 619,749 | Excellent |
| Current Liabilities | 544,474 | Manageable |
| Long-term Liabilities | 2,667 | Negligible |
| Net Assets | 640,032 | Solid equity position |
Key Ratios:
| Ratio | Value | Benchmark | Assessment |
|---|---|---|---|
| Current Ratio | 2.04x | >1.5x | ✓ Healthy |
| Quick Ratio | 0.85x | >1.0x | ⚠ Below target due to high WIP |
| Cash Ratio | 1.14x | >0.5x | ✓ Strong |
| Gearing (Total Liabilities/Total Assets) | 49% | <60% | ✓ Acceptable |
| Equity Cushion (Net Assets/Total Assets) | 57.5% | >30% | ✓ Strong |
Trajectory Analysis:
Net assets have shown substantial long-term growth from £140k (2016) to £640k (2021), demonstrating effective value creation. However, the most recent period shows a decline from £880k to £640k. This £240k reduction in retained earnings warrants investigation—it may reflect trading losses, dividend extraction, or simply the shortened 11-month accounting period. The prior year saw exceptional cash balances (£986k) which may have included advance payments or timing anomalies.
The company carries minimal long-term debt (£2,667 in HP commitments), indicating conservative financial management and low leverage risk.
3. Cash Flow Assessment
Liquidity Position: The company maintains an exceptionally strong cash position with £619,749 on hand—sufficient to cover 114% of current liabilities without relying on stock realization or debtor collection. This provides significant headroom for debt service obligations.
Working Capital Analysis:
| Component | 2021 | 2020 | Movement |
|---|---|---|---|
| Net Current Assets | 567,860 | 795,646 | (227,786) |
| Stocks/WIP | 472,890 | 350,186 | +122,704 |
| Trade Debtors | (5,113)* | 47,476 | (52,589) |
| Trade Creditors | 244,362 | 245,001 | (639) |
*Trade debtors showing a credit balance is unusual and may indicate overpayments, advance receipts, or credit notes outstanding. Clarification required.
Observations: - Working capital remains strongly positive at £568k - Stock/WIP has increased by 35% (£123k), which in a construction/installation business typically reflects ongoing contracts - The significant drop in trade debtors combined with a credit balance warrants explanation—this could be benign (customer overpayments) or concerning (disputed amounts) - Cash conversion appears strong given the nature of the business - Taxation and social security liabilities of £220,590 are substantial and should be monitored for timely payment
Cash Flow Resilience: The company's cash reserves provide approximately 12-18 months of operating cost coverage (based on typical SME overhead), offering strong resilience against short-term disruptions. The parent company relationship with Ross-Shire Engineering Limited (owning >75%) may provide additional support, though this should be confirmed.
4. Monitoring Points
| Metric | Current Status | Threshold for Concern | Frequency |
|---|---|---|---|
| Cash Position | £619,749 | Below £300k | Quarterly |
| Retained Earnings | £624,072 | Further significant decline | Annual |
| Stock/WIP Levels | £472,890 | Exceeding £600k without proportional contract coverage | Semi-annual |
| Trade Debtors Balance | Credit of £5,113 | Any unexplained credit balance | Immediate review |
| Tax Liabilities | £220,590 | Overdue or growing without corresponding revenue | Quarterly |
| Parent Company Health | Ross-Shire Engineering Ltd | Any signs of parent distress | Annual |
| Employee Numbers | 33 (down from 35) | Further significant decline | Annual |
| HP Commitments | £4,754 total | New significant capital commitments | As incurred |
Specific Conditions for Approval:
-
Explanation Required: Obtain satisfactory explanation for the £240k decline in retained earnings—determine whether this reflects trading losses, dividend payments, or accounting adjustments related to the shortened period
-
Parent Company Review: Request and review latest financial statements for Ross-Shire Engineering Limited to assess group strength and confirm willingness/ability to provide support if needed
-
Trade Debtors Clarification: Obtain explanation for the credit balance in trade debtors and confirm no disputed amounts or provisions required
-
Stock Quality: Confirm the nature and recoverability of the £473k WIP/stock—assess whether this relates to identifiable contracts with reasonable margins
-
Covenant Structure: If facility approved, include minimum cash covenant of £250k and net assets covenant of £400k
Sector Considerations: The company operates in water infrastructure construction and installation (SIC 42910/43210/43290)—sectors with steady demand driven by regulatory requirements and essential service provision. This provides reasonable business resilience, though contract-based revenue can create working capital fluctuations.