MODGATE LIMITED

Risk Rating: MEDIUM

The company shows a stable net asset position and improved cash reserves, but the high level of trade debtors relative to cash, combined with a change in accounting period that complicates direct year-on-year comparison, introduces moderate liquidity and operational risk.

Key Concerns

1. High Trade Debtor Concentration
   Debtors stand at £3.14 million, representing 63% of current assets and 144% of current liabilities. This level of receivables creates cash flow dependency on timely customer payments. Any deterioration in debtor ageing or credit quality could rapidly pressure liquidity, especially given cash of only £635,000.

2. Change in Accounting Period
   The financial statements cover an 18-month period (July 2023 to December 2024) compared to the prior 12-month periods. This change reduces comparability of balance sheet movements and makes it difficult to assess underlying trading performance. The reason for this change is not clearly stated in the available notes.

3. Short-Term Liability Structure
   All reported liabilities (£2.18 million) fall due within one year, with no long-term debt evident. While the current ratio is healthy at 2.28, the reliance on short-term financing leaves the company exposed to refinancing risk or sudden demands from creditors.

Positive Indicators

• Strong Net Asset Base
  Net assets of £2.86 million have grown steadily from £2.34 million in 2017, indicating consistent retained profitability and a solid equity cushion.

• Improved Cash Position
  Cash increased from £170,000 in June 2023 to £635,000 in December 2024, reversing a declining trend seen in prior years. This suggests better working capital management or improved operating cash flows.

• Long Operational History
  Incorporated in 1978, the company has operated for over 45 years in the wholesale sector, suggesting established customer relationships and market resilience.

• No Filing or Compliance Issues
  Accounts and confirmation statements are up to date. The company is entitled to audit exemption and has filed accounts on time.

Due Diligence Notes

• Debtor Ageing Analysis – Request a detailed breakdown of trade debtors by ageing (30, 60, 90+ days) and any provision for doubtful debts. The current accounts do not disclose this.
• Reason for Accounting Period Change – Clarify why the year-end shifted from June to December and whether this reflects a strategic or operational change.
• Profitability Trends – Obtain profit and loss accounts for the 18-month period and prior 12-month comparatives to assess revenue, gross margin, and net profit trends.
• Shareholder Concentration – With Xxxxxx Xxxxxxxxname shown to subscribers owning over 75% of shares, assess key-person dependency and succession planning, as control is highly concentrated.
• Contingent Liabilities – Review any off-balance sheet commitments, guarantees, or litigation that are not captured in the filed accounts.

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