A few questions about financials

[Tonsko]

Please could someone ELI5 ('explain like I'm 5' for non-redditors) what the significance of 'Current Liabilities' is?

I'm looking at a company that has 9K cash in the bank (down 55% from last year's accounts), current liabilities of 481K (up 13%), assets of 840K (up 35%), turnover of 2.8mill and net worth of 312K (up 122%).

What does this actually mean?

Thanks

[Stephanie Plum]

I am not an accountant.

But as I understand it that means they owe £481k which you should deduct from their assets, leaving them with assets of £359k in the year you are looking at.

What are they owed? And why have they only got £9k in the bank? Are their debtor days under control?

[anonymous-user]

current liabilities is money owed by the company within the next 12 months from the date of the accounts

there are some exceptions to the '12 months' but, for your purposes it is a good place to start

you would want to know who the money is owed to, for what and on what terms to make any significant judgment on it

[Eric Mc]

As explained, they are liabilities owed in the short term (as opposed to long term ).

They usually consist of -

trade creditors (suppliers etc)
taxes of various sorts (VAT, Corporation Tax, PAYE/NIC etc)
short term bank borrowings - such as bank overdrafts
short term loans to directors or employees

[Tonsko]

Thanks for replies so far.

So I guess that I should explain why I was asking, I was being a little cagey, because internet.

Anyway, I am thinking of moving jobs, and was just trying to do a bit of due diligence, as much as an outside individual can do. The kind of questions that it was recommended that should be asked, I can't really ask - or can I in the interview? I guess I could, it may show a certain type of analytics - but not until I get there.

The net worth has tripled since 2013. Is that a valid metric to make a decision? Also a little concerned about the liabilities and cash level. These things do not often paint a true picture though, I understand that.

Does this company's health look good or not? Best guess.

Edited by Tonsko on Friday 8th January 11:41

[Stephanie Plum]

I would be concerned at how little cash they have in the bank. The old adage about lack of profit being a cancer at the heart of the business, but lack of cash being more like a heart attack, rings true. How will they pay this months salaries for example? And suppliers.

Is it a sales job? Struggling companies have been known to employ sales people towards the end in a last hopeless attempt to stave off bankruptcy.

However, bear in mind that published accounts are usually some 18 months out of date. Where did you get these figures?

[Tonsko]

No, it's not a sales job. The figures come from Endole (one of many sites that do this kind of thing), which is just public info I think.

Edit: Company check shows a slightly different picture:

Accounts  2011  2012  2013  2014 2015
Cash       £31,353.00    £123.00    £190.00       £20,362.00 £9,073.00
Net Worth       £32,709.00       £55,716.00 £99,819.00 £134,908.00 £309,230.00
Total Current Assets      £351,929.00  £219,359.00 £93,866.00 £338,459.00 £487,292.00
Total Current Liabilities £374,123.00 £242,010.00 £232,370.00 £424,769.00 £481,586.00

Man, the formatting is completely up the swanny. Sorry, I can't seem to sort it out.

Edited by Tonsko on Friday 8th January 12:20

[Stephanie Plum]

In that case they are more than likely out of date. No harm in asking how their figures are looking at interview. Depending on how senior the position is, you'll get some level of answer.

[Eric Mc]

You can get the basic information from the Companies House website. Are they classified as a "small" company so only submit "abbreviated accounts" or are they large enough to have to submit more substantial "full" accounts?

[Zoon]

9k cash is dreadful.
Cash is king in business.
You can turnover a billion pounds but still be wound up with a poor cashflow.

[Tonsko]

I agree 9K cash is not too rosy (which is what triggered this post I guess).

Eric Mc said:

You can get the basic information from the Companies House website. Are they classified as a "small" company so only submit "abbreviated accounts" or are they large enough to have to submit more substantial "full" accounts?

They have submitted "Total exemption full accounts " up to 2015, which you can view. In the report it says ' Prepared in accordance with Small company provisions' (paraphrased). Not too au fait with accounting stuff though, I can vaguely remember Business Studies A level, but not what it actually *means*.

Edited by Tonsko on Friday 8th January 12:37

[Eric Mc]

Sounds like they have submitted their accounts taking advantage of the reduced disclosure option available to small companies. A small company is a company with sales of under £6.5 million, less than 50 staff and total assets of under £3.2 million.

The difference between the current liabilities and the current assets is getting better - so maybe matters are improving for them.

In business, it is expected that you should always have more current assets than current liabilities because, in theory, you should be able to pay off short term liabilities by using your short term assets - such as cash in the bank, or money due to you from customers.

Edited by Eric Mc on Friday 8th January 12:45

[hajaba123]

This is a fairly small business so likely owner managed. The accounts lodged at Co House will not tell the full story. Depending on the role that you're going for the interviewer/ business owner may get the hump at you tearing the figures apart.

If you're looking at DD for a job move I'm not sure I'd go with the annual accounts for an SME as part of my decision making process.

[Tonsko]

hajaba123 said:

This is a fairly small business so likely owner managed. The accounts lodged at Co House will not tell the full story. Depending on the role that you're going for the interviewer/ business owner may get the hump at you tearing the figures apart.

If you're looking at DD for a job move I'm not sure I'd go with the annual accounts for an SME as part of my decision making process.

Yes, this is the other other point of view, thank you for raising it. Am I reading too much into this just for a job (that is not board level or anything as grand)? Am I indeed looking the wrong place for information that might ultimately not make a difference to me? Will they see their arse for me prying? Another reason why I started the thread, in an effort to crystallise my thinking.

Edited by Tonsko on Friday 8th January 13:11

[Tonsko]

I've accepted the job, if anyone is interested. Terms were exactly what I was after.

I didn't ask about it in the interview, as I felt it wasn't my place.

[anonymous-user]

As an accountant I wouldn't worry about the accounts, 9k doesn't look good, but asset ratios look OK, 6 of one etc, but the big issue if you are looking at work is order book,

[dartissimus]

I've looked at my own small business financials, they barely make sense to me, never mind an outsider.
Remember a balance sheet is a snapshot in time, and can be manipulated to give a particular view at that moment.
As an alternative you could buy the full reports and show them to someone who can read them properly.
Alternatively talk to people who regularly deal with or are employed by the firm.
Company culture, both within and perceived from outside is important.
I chose not to deal with some firms cos I don't like their corporate attitude or behaviour.
Haven't you ever spoken to someone, who in one sentence manages to loose all your trust?
Whilst I appreciate that this a personal luxury, it keeps me away from the sharks and I trade confidently with people I like and trust.
The same goes for a potential employer.