TEST WITH US LTD
Executive Summary
TEST WITH US LTD demonstrates operational profitability but is currently burdened by significant liabilities leading to negative net assets and strained liquidity. While the business shows promise in its core activities, urgent attention is needed to address financial obligations and improve cash flow to avoid escalating financial distress. With targeted actions, the company can strengthen its financial health and sustain future growth.
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This analysis is opinion only and should not be interpreted as financial advice.
TEST WITH US LTD - Analysis Report
Financial Health Assessment: TEST WITH US LTD (As of 31 January 2024)
1. Financial Health Score: D
Explanation:
TEST WITH US LTD shows early-stage business activity with some positive operating profit but significant accumulated losses reflected in negative net assets and shareholders’ funds. The presence of a "provision for liabilities" leading to net liabilities indicates financial distress symptoms. The score D suggests caution — the company is operational but the financial "vital signs" show underlying weakness that needs addressing to avoid further deterioration.
2. Key Vital Signs
Metric | Value (£) | Interpretation |
---|---|---|
Turnover (Revenue) | 38,754 | Modest revenue reflecting small scale or startup phase. |
Gross Profit | 14,435 | Positive gross margin indicating profitable core activities. |
Operating Profit | 5,669 | Operating profit shows operational viability. |
Net Assets / Shareholders’ Funds | -8,012 / -8,013 | Negative net assets indicate accumulated losses or liabilities exceeding assets, a critical warning sign. |
Cash and Current Assets | 147 | Very low cash reserves, may stress liquidity (cash flow health). |
Fixed Assets | 585 | Minimal investment in long-term assets, typical for a small company. |
Provision for Liabilities | -8,744 | Large provision suggests anticipated expenses or potential claims, increasing financial strain. |
Number of Employees | 2 (average) | Small workforce, consistent with micro/small business scale. |
3. Diagnosis: Financial Symptoms and Underlying Business Health
Positive Operating Performance: The company generated an operating profit (£5,669), which is a healthy sign akin to a patient showing signs of recovery after initial treatment. This suggests the core business operations have potential to generate earnings.
Severe Balance Sheet Weakness: Despite operational profit, the net asset position has swung from positive £750 last year to a negative £8,012 this year. This drastic shift is primarily due to a large provision for liabilities (£8,744). This "symptom of distress" resembles a patient developing a serious underlying condition that threatens overall health.
Liquidity Concerns: Cash reserves are minimal at £147, indicating tight liquidity. This is analogous to low vital fluids in a patient, implying limited buffer for immediate financial obligations.
Small Scale and Growth Stage: With turnover under £40k and only 2 employees, the company is at an early or micro business stage. It may face challenges scaling or absorbing shocks without external funding or operational improvements.
Provision for Liabilities: The significant provision signals possible contingent liabilities or expected costs that could further strain finances. This is a red flag needing urgent review.
4. Prognosis: Future Financial Outlook
If the company can sustain or grow its operating profit while addressing the large provision and improving liquidity, it has a chance to stabilize and improve its financial health.
However, without action to reduce liabilities, increase cash reserves, or secure additional capital, the company risks worsening balance sheet weakness, which could lead to solvency issues.
The current financial "symptoms" suggest vigilance is required; management should treat the provision and negative equity as critical warning signs and seek to remediate urgently.
5. Recommendations: Steps to Improve Financial Wellness
Investigate and Address Provision for Liabilities: Understand the nature of the £8,744 provision. If possible, negotiate settlements or spread costs over time to reduce immediate burden.
Improve Cash Flow Management: Enhance cash inflows through faster receivables collection or new revenue streams; control cash outflows tightly to build a healthy cash buffer.
Seek Additional Capital Injection: Consider equity investment or short-term financing to strengthen working capital and provide financial breathing room.
Monitor Profitability Closely: Maintain or increase gross and operating margins through cost control and pricing strategies.
Prepare Contingency Plans: Develop plans to manage risks related to liabilities and potential unexpected expenses.
Regular Financial Reviews: Implement monthly financial health check-ups to monitor vital signs and react swiftly to any deterioration.
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