How to read company accounts filed at Companies House

You have found a company on Companies House, opened its latest accounts, and you are looking at eight pages of tables with no idea which numbers matter. This guide is for that moment. It walks through what a set of UK company accounts contains, what each part tells you, and how to come away with a judgement about whether the business behind them is stable or struggling.

If you have not found the accounts yet, start with our guide to reading a company’s Companies House record, which covers finding a company and navigating what it has filed. This page picks up where that one leaves off, with the filing open in front of you.

What you are actually holding

The first surprise for most people is how little a small company has to file. A large business files a full set: a balance sheet, a profit and loss account, notes, and reports from the directors and often an auditor. A small company can file what are called filleted accounts, which usually means a balance sheet and a few notes, with no profit and loss account at all. Most UK companies are small, so most of the filings you open will be the short kind.

That is not a red flag. Filing the minimum is normal, legal, and what most accountants advise. But it changes how you read, because the question shifts from ‘how much money is this company making’ to ‘what does its financial position say about its health’. The balance sheet answers that second question surprisingly well, which is why the rest of this guide spends most of its time there.

The balance sheet, top to bottom

A balance sheet is a photograph of the company on one day, its year end, showing what it owns and what it owes. Read it top to bottom and it tells a story in five acts.

Fixed assets come first: the things the company owns and keeps, such as equipment, vehicles, property, and sometimes intangible items like software. A company with substantial fixed assets has something underneath it; a company with almost none is running light, which suits some trades and should worry you in others.

Current assets are next: cash, money owed by customers (debtors), and stock. This is what the company can turn into cash within the year, and it is the fuel the business runs on day to day.

Then creditors falling due within one year: everything the company must pay in the next twelve months, from suppliers to tax to the next year of any loan. Set this against the current assets above it and you have the single most useful comparison in the whole document, which we will come back to.

Creditors falling due after one year follow: longer-term borrowing, typically bank loans or directors’ loans. Debt here is not alarming in itself, but it is weight the company carries, and the trend across years matters more than the figure in any one of them.

And at the bottom, net assets: everything the company owns minus everything it owes. This one line is the summary of the whole photograph.

Net assets in practice

If net assets are positive, the company owns more than it owes, and the size of the figure is its cushion against a bad year. If the line reads net liabilities, or shows a figure in brackets, the company owes more than it owns: sold in its entirety tomorrow, it could not pay everyone. Our glossary entry on negative net assets covers the mechanics; what matters when reading is the judgement, and the judgement is that negative net assets is the single loudest warning a balance sheet can give. Some companies trade through it, often propped up by a director lending their own money, but a business in that position has no margin for anything going wrong.

Between those poles, read the number against the size of the business. Net assets of ten thousand pounds is a healthy cushion for a one-person consultancy and a rounding error for a company with a warehouse and forty staff. The balance sheet gives you the scale to judge by: a company whose net assets are a small fraction of its total liabilities is thinly cushioned however positive the bottom line looks.

The comparison worth making yourself

Take current assets, and divide by creditors falling due within one year. The result is the current ratio, and it answers the most practical question of all: can this company pay the bills it already knows are coming? Above 1 means its short-term resources cover its short-term obligations. Below 1 means they do not, and the accounts will sometimes say this out loud with the phrase net current liabilities, which is the same warning in words.

This is a thirty-second calculation from two lines that are on virtually every filing, including the shortest filleted accounts, and it catches struggling companies that a glance at net assets can miss, because a business can own plenty in fixed assets and still be unable to find the cash for next month’s bills.

The profit and loss account, when there is one

Where a profit and loss account is filed, it shows the year as a moving picture rather than a photograph: what came in, what it cost, and what was left. Turnover at the top, profit at the bottom, and between them the shape of the business. Read it alongside the balance sheet rather than instead of it: a profitable year can sit on top of a weak balance sheet, and one bad year on a strong one is survivable.

When it is absent, which is most of the time, you are not blind. Profit leaves footprints on the balance sheet: a company that made money usually shows it in rising net assets, growing cash, or shrinking debt from one year to the next. Which brings us to the most useful trick in the whole exercise.

Read two years, not one

Every balance sheet prints the previous year’s figures beside the current ones, so a single filing already contains a trend. Compare the columns. Are net assets growing or shrinking? Is cash up or down? Are the creditors’ lines swelling? A company can look acceptable in one column and alarming across two, because direction reveals what a snapshot hides. A business whose numbers are modest but improving is generally a better bet than one whose numbers are larger but sliding, and only the comparison tells you which you are looking at.

Stable or struggling

Pulling it together, a stable company reads like this: positive net assets in sensible proportion to its size, current assets covering the year’s creditors, borrowing steady or falling, and the two columns moving the right way. A struggling one reads the other way: net liabilities or a thinning cushion, a current ratio below 1, debt building, and the wrong direction of travel, often with late filing alongside, since companies in difficulty tend to go quiet at Companies House too.

No single line settles it. It is the pattern that speaks, and after a few readings you will find the pattern jumps out within a minute of opening the PDF.

Reading one set of accounts is a learnable skill. Reading them at volume, against filing history and director records, with every warning sign checked on every company, is what CompanyIQ is for. Run a company and it reads the latest filed accounts, scores the financial health, and shows you the evidence behind every judgement, in about a minute. Run your first check at company-iq.co.uk.

For the terms this guide leans on, from filleted accounts to going concern, our glossary of company accounts terms defines each one plainly.