Company Financial Statements - dull but can anyone help?

[KiplingAngelCake]

I'm looking at the abbreviated financial statements for a potential supplier to try and get a feel for their financial situation before committing.

I don't know how to interpret the info! Can anyone help please?

The balance sheet says £1.2 million in net assets (up from £600k the year before) and £380k cash at bank.

This doesn't say anything about profitability does it? But it looks ok financially?

The equity is £1.2m and I guess that is the amount of the MDs investment as he is the only shareholder?

Thanks - and sorry for cluelessness!

You can't tell much from abbreviated accounts, the balance sheet basically gives a snap shot of the position in the company on the date that the accounts are made up to. You need a profit and loss account to get a better idea of what's going on and they're only required in full accounts (i used to work at Companies House).

It's very difficult to read anything from abbreviated accounts, although the large cash balance is encouraging. The equity should be shares plus the accumulation of the various year's profits (reserves), so if the net assets have gone up £600k, either they've increased the number of shares (and cash injection by the owner), or they've made £600k profit from last year. Very difficult to say anything substantive though, as a balance sheet is just a snapshot on that particular day.

What EmmaStone said.

Also - what is the figure for net current assets? (current assets less current liabilities)?

And - look at the balance sheet for the year before as well.
And - look at the director and see whether he is or has been a director of any other companies. If so, look at them as well, especially if any are no longer in business - why?

Ask them for a copy of their latest management accounts, most suppliers with nothing to hide won't have a problem with giving you them subject to you agreeing to confidentiality.

Sorry for my late reply and thanks for all your replies - very helpful!

Former financial analyst here. You are looking at their Balance Sheet, which just gives a snapshot.

What is the date on it? If Dec 2017, that info is about 1 year out of date. Get their most recent BS plus the one from 1 year ago - e.g. Sept 2017 & Sept 2018. Then compare:

• Did liabilities (short term & long term) go up? If so, they might have borrowed money (because business isn't good?) and that could account for their large cash position.

• Did receivables (under short term assets) go up? That could mean difficulty collecting payments and hence cash flow problems.

• Ask for their Income Statements (again, Sept 2017 & Sept 2018, if possible, or most recent and the year before it). Are sales increasing? If so, are operating profits & pretax profits also increasing? If not why not? (If profits are going down due to depreciation, that's not a problem.)

• What is the size of their Balance Sheet? (= Total Assets)? If it's 100M, 380K cash and 1.2M equity is not as impressive.

"£1.2 million in net assets (up from £600k the year before) and £380k cash at bank.... The equity is £1.2m and I guess that is the amount of the MDs investment as he is the only shareholder?"

Yes. As you say in the previous sentence, that is also called "Net Assets" = Assets - Liabilities, which gives Shareholders' Equity.