ECOLUTION GROUP LIMITED
Company number 03740408 · 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.
Financial Health Assessment: Ecolution Group Limited
1. Financial Health Score
Grade: B (Stable, with areas requiring attention)
The company is not in distress. It holds positive net assets, generates cash from its core operations, and meets its filing obligations on time. However, profitability has weakened in the latest reporting year, and working capital is stretched. The overall picture is one of a solvent business that is currently absorbing the cost of a strategic transition, leaving it with less financial cushion than in prior years.
2. Key Vital Signs
| Vital Sign | Latest Reading | Interpretation |
|---|---|---|
| Liquidity (ability to pay short-term bills) | Current ratio of roughly 2.5 : 1; cash of £797,226 | Healthy. The group has about two and a half times more current assets than current liabilities, similar to a strong blood-pressure reading. Even excluding stock, the quick ratio remains above 2 : 1. |
| Solvency (long-term financial strength) | Net assets of £3,147,183, up from £2,978,567 the prior year; modest gearing of roughly 60% debt-to-equity | Sound. The business is not over-leveraged and its net worth is growing. Interest cover is approximately 9 times, meaning operating profit comfortably covers interest costs. |
| Profitability (ability to generate surplus) | Net profit margin fell from roughly 6.8% to 3.4%; operating profit down from £616,000 to £330,000 | Weakening. Gross margin improved (from roughly 48% to 51%), but higher administrative expenses and an exceptional item reduced the bottom line. |
| Efficiency (how quickly cash moves through the business) | Debtor days of roughly 152 days; creditor days of roughly 189 days; stock days of roughly 68 days | Strained. Sales are taking about five months to convert into cash, while the business is funding itself by taking roughly six months to pay suppliers. This creates a working-capital gap. |
| Cash flow (circulation of money) | Operating cash inflow of £358,035; net cash decrease of £75,389 after financing outflows | Adequate. Core operations generate more cash than the reported profit, but loan repayments, finance-lease payments and dividends reduced the bank balance during the year. |
Compliance pulse: Accounts and confirmation statements are not overdue. The group has taken advantage of the small-company audit exemption, meaning the accounts have not been independently audited.
3. Diagnosis
Overall condition: Stable, but showing symptoms of margin compression and working-capital strain.
The accounts describe a successful strategic shift from construction-led work to repairs, maintenance and energy-efficiency solutions, supported by long-term public-sector contracts. Financially, the group enters the period with a strong balance sheet, yet several symptoms are visible:
- Profitability fatigue: Revenue was broadly flat (£6.61m versus £6.77m), but administrative expenses rose by roughly £269,000. The accounts state this reflects investment in systems, training and talent. While strategic, these costs have temporarily halved the net profit margin.
- Working-capital strain: Debtors equivalent to around five months of sales suggest slow collection, particularly on public-sector contracts. Creditors equivalent to more than six months of cost of sales indicate the business is relying heavily on supplier payment terms. If creditors tighten terms or debtors pay later, cash could tighten quickly.
- Parent-company divergence: The holding company reported a loss of £160,571 for the year and holds large intercompany debtors (£4.77m) against creditors of £4.02m. This suggests the parent is funding subsidiaries; any delay in recovering those intercompany balances could pressure the holding company’s own obligations.
- Sector exposure: The strategic report identifies continued government funding and public-sector demand as key risks. A reduction in decarbonisation funding or delays in public-sector spending would directly affect revenue visibility.
4. Prognosis
Cautiously positive, provided current pressures are managed.
The secured long-term repairs and maintenance contracts provide recurring revenue, which is a stabilising factor. Operating cash flow remains positive and net assets are increasing. However, the outlook depends on:
- converting the debtor book into cash more quickly;
- maintaining good creditor relationships so payment terms do not tighten abruptly;
- ensuring the parent company’s intercompany balances are recoverable; and
- diversifying away from reliance on government-funded programmes.
If debtor days and creditor days remain at current levels, a sudden loss of a major public-sector contract or a cut in decarbonisation funding could expose the business to liquidity pressure despite its positive net assets.
5. Recommendations
- Tighten credit control: Invoice promptly, agree stage payments on public-sector contracts, and consider invoice financing or factoring to bring debtor days from roughly 152 days toward a target under 90 days.
- Review creditor terms: Negotiate sustainable payment terms with key suppliers and avoid over-reliance on extended credit. Preserve supplier goodwill to reduce the risk of sudden demands for payment.
- Monitor parent-company exposures: Keep the large intercompany debtor under regular review and ensure the holding company can meet its own creditors (£4.02m falling due within one year) without depending solely on subsidiary repayments.
- Protect cash reserves: Maintain a cash buffer equivalent to at least three months of operating costs, and align dividend payments with actual cash generation rather than reported profit.
- Control overhead growth: Assess the return on recent investments in ERP, training and talent. Ensure administrative expense increases are matched by revenue growth or clear efficiency gains.
- Diversify revenue: Grow commercial and private-sector clients to reduce dependence on government funding and public-sector decarbonisation programmes.
- Scenario planning: Model the impact of reduced public-sector spending or delayed grant funding on cash flow and covenant headroom, and prepare contingency plans.