Reading a simple set of accounts
Lesson 11 of 13 in our free Business Money Advanced guide: a 5-minute money game with the key points below.
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Questions you'll answer
Crumb Ltd's balance sheet: current assets £25,000 (including cash of £3,000), creditors due within one year £45,000. How big is the shortfall in net current assets?
Crumb also has £30,000 of debts due after more than one year and fixed assets of £40,000. Its total equity is negative. What's the biggest worry for a supplier?
Quick facts
- Retained profits growing each year → Green flag. The business keeps making profit and keeping some of it.
- Accounts filed late, again → Red flag. Late filing can hint at disorganisation or worse. Worth asking why.
- Plenty of cash compared with debts due within a year → Green flag. A healthy short-term position.
- Debts due within a year far bigger than current assets → Red flag. A squeeze is coming unless something changes.
- Equity that has turned negative → Red flag. It owes more than it owns on paper.
- Fact: “Limited company accounts filed at Companies House are public.” — Anyone can view them free online. Sole traders don't file public accounts.
- Myth: “Small companies always have to publish a full P&L.” — Many small companies can file a shortened set, often just the balance sheet and notes.
- Fact: “Filed accounts can be many months out of date by the time you read them.” — Private companies have 9 months after their year end to file, so check the date.