HOLMES MORGAN LIMITED
Company number 04452880 · 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 Analysis: HOLMES MORGAN LIMITED
1. Credit Opinion: CONDITIONAL
Rationale: The company presents a fundamentally strong balance sheet with net assets exceeding £1.2M and minimal total liabilities of just £25,737, indicating substantial deleveraging over recent years. However, a critical liquidity concern exists: current assets are negative at (£60,400), meaning the company cannot cover short-term obligations from liquid resources. Additionally, the latest year shows a loss (retained earnings fell by £54,525), and cash remains perilously thin at £13,060. Any credit facility should be secured against the significant tangible asset base and subject to liquidity covenants.
2. Financial Strength
Balance Sheet Composition (Year Ending 31 May 2025):
| Item | £ | % of Total Assets |
|---|---|---|
| Tangible Fixed Assets | 1,318,591 | 104.7% |
| Investments | 1,000 | 0.1% |
| Current Assets | (60,400) | -4.8% |
| Total Assets | 1,259,191 | 100% |
| Creditors (< 1 year) | (25,737) | |
| Creditors (> 1 year) | (10,752) | |
| Provisions & Deferred Tax | (14,912) | |
| Net Assets | 1,207,790 |
Key Observations:
- Asset Quality Concern: The balance sheet is overwhelmingly illiquid, with tangible fixed assets representing 104.7% of total assets. The composition is heavily skewed toward property/plant/equipment, with virtually no working capital buffer.
- Negative Current Assets: Debtors show as (£73,460) – an unusual position that may reflect provisions, prepayments, or an accounting treatment that requires clarification. Combined with only £13,060 cash, this creates a working capital deficit of £86,137.
- Liability Reduction: Total liabilities have reduced dramatically from £1.03M (2017) to just £25,737 (2025). This represents exceptional deleveraging, though it appears largely driven by asset reclassification rather than cash generation.
- Equity Erosion in Latest Year: Net assets fell from £1,262,315 to £1,207,790 – a £54,525 decline indicating a loss in the period. This reverses a consistent growth trajectory since 2016.
Long-term Trajectory (Net Assets):
| Year | Net Assets | YoY Change |
|---|---|---|
| 2016 | £478,818 | - |
| 2017 | £585,746 | +22.3% |
| 2018 | £643,380 | +9.8% |
| 2019 | £709,328 | +10.2% |
| 2020 | £946,305 | +33.4% |
| 2021 | £1,038,578 | +9.7% |
| 2022 | £1,062,120 | +2.3% |
| 2023 | £1,068,521 | +0.6% |
| 2024 | £1,262,315 | +18.1% |
| 2025 | £1,207,790 | -4.3% |
The 2025 decline is the first reversal in the entire 9-year history reviewed.
3. Cash Flow Assessment
Liquidity Position – CRITICAL CONCERN:
| Metric | 2025 | 2024 | Movement |
|---|---|---|---|
| Cash | £13,060 | £7,409 | +£5,651 |
| Debtors | (£73,460) | £57,413 | -£130,873 |
| Current Liabilities | £25,737 | £80,949 | -£55,212 |
| Net Current Assets | (£86,137) | £16,127 | -£102,264 |
| Current Ratio | N/A (negative) | 0.80x | Deteriorated |
Cash Flow Indicators:
- Cash Generation: Cash has improved marginally from £7,409 to £13,060, but remains insufficient for operational flexibility. With 4 employees and an engineering business, this provides minimal headroom.
- Debtors Anomaly: The swing from £57,413 positive debtors to (£73,460) negative is extraordinary and represents the primary driver of the liquidity deterioration. This requires urgent clarification – possible explanations include:
- Overpayment to suppliers or HMRC
- Change in accounting treatment for accrued income
- Provisions against receivables
- Related party balances (though Note 9 states no disclosable transactions)
- Directors' Loan Repayment: Note 8 confirms £105,000 in advances made in the prior year were repaid in full. While positive from a governance perspective, this may have strained cash flow.
- Bank Loan: £10,752 outstanding, interest-free until November 2021 then at 2.5% – a negligible cost of borrowing.
Working Capital Assessment: The company is technically insolvent on a current assets basis. Without access to cash reserves or an overdraft facility, day-to-day obligations cannot be met from liquid resources. The business appears reliant on cash generation from trading and the significant tangible asset base for survival.
4. Monitoring Points
| Metric | Current Position | Threshold | Action Trigger |
|---|---|---|---|
| Net Current Assets | (£86,137) | > £0 | Immediate – requires clarification |
| Cash Position | £13,060 | > £50,000 | Quarterly monitoring |
| Profitability | Loss in 2025 | Break-even minimum | Annual review |
| Debtors Balance | (£73,460) | > £0 | Immediate – explanation required |
| Tangible Asset Valuation | £1,318,591 | Independent valuation | If seeking secured lending |
| Directors' Advances | £0 (repaid) | £0 | Ongoing – any new advances flag concern |
Additional Governance Considerations:
- Key Person Risk: Only 4 employees with two PSCs (Holmes and Morgan) controlling the business. Succession planning should be assessed.
- Filing Compliance: Accounts and confirmation statements are up to date – positive indicator.
- Directors' Conduct: No disqualification records identified. The £105,000 advance (now repaid) warrants note but is resolved.
- Asset Backing: For any secured lending, independent valuation of the £1.3M tangible assets is essential. Given the registered office is at "The Smithy, West Kington" (a rural Wiltshire address), a significant portion may be property-related.
Recommended Conditions for Lending: 1. Full explanation of negative debtors position required 2. Any facility to be secured against tangible assets with appropriate valuations 3. Minimum liquidity covenant requiring net current assets > £0 4. Prohibition on further directors' advances without lender consent 5. Quarterly management accounts to monitor cash position