TODD RESEARCH LIMITED

Financial Health Score: B (Good)

The company demonstrates a fundamentally sound financial constitution with strong liquidity and a solid net asset base. However, there are emerging symptoms that warrant monitoring, particularly around profitability and working capital management.

Key Vital Signs

• Current Ratio (2025): 2.35 — Healthy, though down from 3.36 in 2024. Still well above the 2.0 benchmark for comfort.
• Quick Ratio (2025): 1.75 — Strong, indicating the company can meet short-term obligations without relying on stock sales.
• Debt-to-Equity Ratio (2025): 0.78 — Moderate leverage, up from 0.56 in 2024. The company is taking on more debt but remains within manageable levels.
• Cash Position: £914,570 — Robust and growing year-on-year. A healthy cash reserve acts as a buffer.
• Net Assets Growth: Up from £1.40M (2022) to £1.98M (2025) — steady expansion, though growth slowed to just 2% in the latest year.
• Profitability Indicator: Retained earnings increased by only £42k in 2025, suggesting a thin profit margin relative to the size of the business (roughly 1.2% return on total assets).

Diagnosis

The company’s financial vital signs are reassuring: strong cash flow, positive working capital, and a net worth that has grown consistently over four years. However, there are two symptoms of strain:

1. Inventory Buildup: Stocks surged from £293k to £874k — a near tripling. This could indicate either growth-driven investment or slow-moving stock. If the latter, it ties up cash and risks obsolescence.
2. Current Liabilities Spike: Creditors due within one year rose from £867k to £1.45M, while long-term debt fell. This shift may reflect tighter supplier terms or increased use of short-term financing, which can pressure liquidity if not managed carefully.
3. Low Profitability: With net assets of nearly £2M and total assets of £3.5M, a profit of only £42k is anaemic. The company may be generating revenue but not converting it efficiently into bottom-line growth.

Overall, the diagnosis is a stable but underperforming financial constitution. The company is not in distress, but it is showing early signs of metabolic inefficiency.

Prognosis

If current trends continue, the company is likely to remain solvent and meet its obligations. However, without addressing inventory turnover and profit margins, the business risks a gradual erosion of returns and potential cash flow tightness if creditor terms tighten further. The strong cash balance provides a cushion, but it should be deployed strategically.

Recommendations

1. Improve Profit Margins: Review pricing, cost of goods sold, and operational efficiency. A profit of ~£42k on a £3.5M asset base is too low. Even a modest improvement would significantly boost retained earnings.
2. Manage Inventory Levels: Investigate the reason for the stock increase. If it is intentional (e.g., bulk purchase for a large contract), ensure it turns quickly. If not, implement tighter inventory controls to avoid cash being locked up.
3. Refinance Short-Term Debt: With strong cash reserves, consider reducing the reliance on creditors due within one year by negotiating longer payment terms or using some cash to pay down expensive short-term liabilities.
4. Monitor Working Capital Trends: The drop in net current assets from £2.05M to £1.96M is small but signals a direction to watch. Maintain a current ratio above 2.0 by keeping liability growth in check.