Guide to UK accounting records Part 2
A Guide to UK accounting records Part 2
Companies in the UK are required to file accounts each year with a Government department known as Companies House. All the data listed there is public and is open to review by anyone with an interest. Actual understanding of the data there can be a challenge for even experienced accountants and can be daunting to the less experienced. In this part 2 guide Adrian Lawrence FCA a qualified UK Chartered Accountants shares some insights and hints to help you find your way through the financial data.
What are the signs to look out for?
A sign of a business in distress is when its creditors are rising whilst and its cash and net assets are falling. This indicates that a business is having to stretch its creditors and at is at the same time pushing its debtors to pay sooner.
Companies have gotten themselves into difficulty for what is known as overtrading, here a company expands faster than its working capital allows for, it therefore becomes dependent on creditors to finance its expansion. Companies have gone bust for this reason in the past.
If you can, get access to up to date trade creditor information, then this can be a great early indicator of trouble. Many credit agencies buy in this data as it is such a good indicator of early distress. If that is not available then take a look at what is known as the quick ratio, this is the ratio of current assets vs current liabilities, if the ratio is below 1 then a company is reliant on its creditors to support it.
These are just a couple of useful factors to watch out for.
If you use our service on a daily basis as an increasing number of people do, you’ll notice that our key financials are now updated each day as companies house updates and shares their records with us.
Direction of Travel - it use a phrase from local government keep an eye on the way a company is trading, if things are going bad there is usual an underlying reason and if the trend continues for several reporting cycles then that spells potential trouble. Use our service to regularly download up to date credit information to supplement the great free information we have availabe. Remember our data updates around once per month so its important to keep checking back regularly for the latest position.
Keep checking back for more useful tips.
Read Part 3 for more great tips from your team at Reporting Accounts
Bio - Adrian is a Chartered Accountant and also the CEO of Reporting Accounts, you can often find his contributions here and around the web such as the Microsoft Tech Community. The is also active in the Quickbooks and Xero communities.