Financial Health Assessment: YESERO LIMITED

Financial Health Score: C-

Explanation: The company shows a healthy heartbeat on paper with growing equity and profitability, but is suffering from a critical liquidity crisis. The near-total depletion of cash reserves from £377,885 to just £5,369 represents a 98.6% haemorrhage that, if untreated, could prove fatal to ongoing operations.

Key Vital Signs

Diagnosis

1. Critical Condition: Cash Depletion

The most alarming symptom is the near-total evaporation of cash. A 98.6% drop from £377,885 to £5,369 in a single year is the financial equivalent of a patient losing almost all their blood volume. With only £5,369 in the bank, the company has virtually no emergency reserves and is operating on life support from its debtors.

2. Arterial Blockage: Debtors Swelling

Total debtors increased by £322,040 (13.8%), with the composition particularly concerning: - Trade debtors: £989,169 (up 13.3%) – money owed by customers - Group undertakings: £1,200,000 (unchanged) – intercompany loan - Other debtors: £464,878 (up 79.8%) – significant unexplained increase

The £1.2M owed by group undertakings is essentially a blocked artery – this represents capital that could relieve the cash crisis but appears to be locked in intercompany arrangements. The company is effectively acting as a blood bank for related entities while itself running anaemic.

3. Compensatory Mechanism: Stretching Suppliers

Trade creditors increased by £203,091 (16.4%) to £1,443,175. This suggests the company is delaying payments to suppliers to conserve cash – a coping mechanism that cannot be sustained indefinitely without damaging supplier relationships and potentially losing credit terms.

4. Positive Sign: Profitability Remains

Retained earnings grew by £97,564 (from £1,021,438 to £1,119,002), indicating the company is still generating profits. Shareholders' funds have grown consistently over the past several years, showing underlying business health. The patient is still creating value – it just can't access it.

5. Concerning Trend: Workforce Halving

The reduction from 6 to 3 employees is significant for a plastering company. This could indicate: - Downsizing due to reduced workload - Efficiency improvements (unlikely to explain a 50% reduction) - Financial pressure forcing staff cuts - Potential operational capacity constraints

6. Asset Investment Continues

Despite the cash crisis, the company invested £50,981 in new assets (£38,000 in motor vehicles, £12,981 in computer equipment). This suggests ongoing business activity but raises questions about prioritisation when cash is so depleted.

7. Debt-to-Equity Ratio: Moderately Leveraged

At 1.48:1 (£1,653,189 liabilities vs £1,119,003 equity), the company is moderately leveraged. While not excessive for the construction industry, the quality of the liability management is questionable given the cash position.

Prognosis

Short-term outlook (6-12 months): CAUTIONARY

The company faces a significant risk of insolvency if it cannot improve cash collection. With only £5,369 in cash and £1,443,175 owed to trade creditors, the company is entirely dependent on collecting from debtors to survive. Any significant payment demand from creditors or delay in debtor collection could trigger a liquidity crisis.

Medium-term outlook (1-3 years): GUARDED

The underlying profitability provides hope for recovery, but only if the cash flow situation is addressed. The construction industry's typical payment cycles (often 60-90 days) combined with the intercompany loan create a structural cash flow challenge.

Key Risk Factors: - Loss of key customer or contract could be terminal given minimal cash buffer - Supplier withdrawal of credit terms would accelerate cash crisis - The £1.2M intercompany receivable represents both a risk and potential solution - Reduced workforce may limit ability to take on new work

Recommendations

1. Emergency Treatment: Cash Recovery Programme 🔴 URGENT

• Implement aggressive debtor collection – target the £989,169 in trade debtors
• Negotiate structured repayment of the £1.2M group undertaking loan
• Review the £464,878 in "other debtors" – understand and accelerate collection
• Consider invoice factoring or discounting to accelerate cash inflow

2. Surgical Intervention: Intercompany Loan 🔴 CRITICAL

• The £1,200,000 owed by group undertakings requires immediate attention
• Negotiate partial repayment to restore working cash
• Establish formal repayment schedule with interest
• If this is a long-term arrangement, question why the parent/group is not supporting this entity's cash needs

3. Preventative Care: Cash Flow Forecasting 🟡 IMPORTANT

• Implement rolling 13-week cash flow forecasting
• Identify and plan for peak cash requirement periods
• Build minimum cash reserve target (suggest minimum 3 months' operating costs)
• Consider establishing or increasing overdraft facilities as a safety net

4. Lifestyle Changes: Working Capital Management 🟡 IMPORTANT

• Review and potentially shorten customer credit terms
• Negotiate extended payment terms with key suppliers where possible
• Consider requiring deposits for large contracts
• Review the 50% workforce reduction – ensure operational capacity is sustainable

5. Structural Review: Business Model Assessment 🟢 STRATEGIC

• Evaluate whether the current business model (heavy debtor dependency) is viable long-term
• Consider whether the group structure is optimally serving this entity
• Review pricing to ensure margins adequately reflect the working capital cost
• Assess whether the company is taking on the right type of work (payment terms, contract size)

6. Monitoring: Regular Health Checks 🟢 ONGOING

• Monthly review of aged debtor reports
• Weekly cash position monitoring
• Quarterly review of intercompany balances and terms
• Annual assessment of banking facilities and funding options

Summary of Financial Vital Signs