SOLON SECURITY LTD

1. Credit Opinion: APPROVE Solon Security Ltd presents a very strong credit profile characterised by a robust balance sheet, negligible leverage, and excellent liquidity. The company has a long trading history (incorporated in 1995) and has maintained substantial net assets exceeding £3.4 million. The significant reduction in current liabilities over recent years, coupled with a healthy cash position, indicates a business that is highly capable of servicing debt obligations and is not overly reliant on external funding. The only minor caution is the slight erosion in retained earnings and the high concentration of capital in stock, which warrants standard monitoring.

2. Financial Strength The company's balance sheet is exceptionally strong. As of 30 September 2025, net assets stand at £3.45 million, virtually unchanged from the prior year (£3.46 million), demonstrating capital stability.

• Low Leverage: Total liabilities are a mere £443.5k against shareholders' funds of £3.45 million. The business operates with very low financial leverage, meaning debt service risk is minimal.
• Asset Quality: The asset base is split between tangible fixed assets of £585k (including a freehold property valued at £558k, which is not depreciated due to the directors' assessment of residual value) and current assets of £3.32 million.
• Stock Concentration: Stocks represent £1.62 million, making up nearly half of total current assets. While typical for a wholesale business, the sizeable stock holding represents potential liquidity risk if stock becomes obsolete or slow-moving.
• Equity Trajectory: Retained earnings in the P&L account dipped slightly from £3.46 million to £3.45 million. This suggests the company either reported a small loss for the year or distributed dividends that exceeded current year profits. However, this minor dip does not compromise the overall equity position.

3. Cash Flow Assessment Liquidity is a key strength for Solon Security. The company exhibits a highly favourable working capital position.

• Current Ratio: Net current assets stand at £2.87 million against current liabilities of £443.5k, yielding a current ratio of approximately 6.5:1. This is exceptionally strong and indicates ample short-term liquidity.
• Cash Position: Cash at bank has improved significantly to £888.8k (up from £528.2k in 2024), reversing the previous year's decline. This suggests strong cash generation from operations or favourable working capital movements.
• Working Capital Dynamics: Trade debtors have reduced substantially from £1.39 million to £808k, and trade creditors have decreased from £242k to £201k. The reduction in debtors strongly suggests improved collection rates or a shift in sales terms, actively converting receivables into cash. "Other debtors" also halved from £920k to £508k, further boosting the cash position.
• Debt Clearance: The business has aggressively paid down creditors, with total current liabilities dropping from £689k in 2024 to £443k in 2025. The director's loan account was also cleared during the year.

4. Monitoring Points While the credit risk is low, the following metrics should be observed going forward:

• Stock Turnover and Obsolescence: Given that stock constitutes £1.62 million of current assets, it is important to monitor stock aging and turnover ratios. Wholesale operations can suffer from margin erosion if stock requires discounting to clear.
• Profitability Trend: The slight reduction in retained earnings indicates that profit generation may be stagnating or that high dividends are being extracted. Requesting management accounts to verify the trajectory of operating margins and net profit would be prudent.
• Other Debtors: The balance of £508k in "other debtors" remains significant despite halving from the prior year. Clarification should be sought on the nature of these balances to ensure they are realisable and do not represent disguised bad debts.
• Freehold Property Valuation: The company does not depreciate its freehold property. While acceptable under certain accounting treatments, the property's carrying value of £558k should be sense-checked against current market values, as it underpins a large portion of the fixed asset base.