How to understand Companies House accounts

[TheGander]

Hello, I am looking to use a glazier to replace all the windows in my flat. I have found a company on Which ? Trusted traders with 10 recent reviews all 5 star. However on Companies House the latest financial info reveals they have all of £500 in retained earnings. They were incorporated in 1994. Is this a bad sign? If I go back to 2021 they have about £35000 in retained earnings. Thanks for any information/ advice

The company could have had a profit of £100,500 and paid a dividend of £100,000 which would result in reserves of £500 or it could be making a loss and running down past reserves. It's impossible to tell from the accounts filed at Companies House if they don't include a profit and loss account.

It’s a sign that they’ve made losses of 35k between the start of their 2021 period and now. Thats not surprising - covid caused huge losses for most small businesses which many are still reeling from.

Id have a look at what their retained earnings were in 2023 and compare that to now. The difference is the profit or loss across the period - ideally you’re looking for a small positive across that period as they rebuild after covid.

Or they could have taken out the retained earnings as a dividend, as the pp said.

In which case it's not a red flag.

Thank you that is helpful. For 2024 there is stocks : none, debtors: £3000, cash at bank £11000, creditors £37000 retained earnings £577. For 2021 its stocks £54000 debtors £954, cash at bank £7414, creditors £49220 retained earnings £38361. Does this sound ok from a business stability point of view, or potentially problematic?

That’s true, but would be unusual.

In my experience small businesses either tend to take fixed annual dividends (effectively like a salary) which would still indicate a loss of that magnitude over the period.

Or they take fluctuating dividends based on annual profits in which case the retained earnings wouldn’t reduce.

Would you feel comfortable sharing the same figures for 2023?

Sure. For 2023 stocks £4135. Deptors £3000, cash at bank £7300. Creditors £36000. Retained earnings £6000.

My reading of this would be that the organisation is struggling financially.

As with many organisations they’ve had a tough time over covid and made large losses relative to the scale of business.

Since covid things are still tight and they’re likely loss making between 2023 and 24. They’ve got creditors at a scale that they can’t repay them immediately from available funds.

I would be careful paying any large deposits to them.

As mentioned by a pp there are other scenarios which could potentially give these figures but they are very unlikely compared to the one I’ve outlined.

Thank you NC10125 for the explanations, I know understand better how to interpret the statements. That is useful to know, maybe time for a rethink.

So that makes a large negative net asset situation? Unless they have large fixed assets that you didn't mention?

Ah yes. As you can see I’m new at this. Fixed assets in 2024 are £28000 in 2021 they were £24000. What would fixed assets comprise? Is it tools, vans, etc?

it should say somewhere roughtly what it is but for that sort of business then yes - vans and bigger tools.

But in terms of day to day cashflow, you can't sell your van to pay off the £33k of creditors - thats why you look at current assets versus current liabilities mostly. I mean they can sell it, but that pretty much means the end of the business.

Thanks burnout babe that makes sense.