Glossary of company accounts terms

Everything a company owns set against everything it owes. A positive figure means the company has a cushion; a negative one means it owes more than it could pay back even by selling everything. The single most useful number on a set of filleted accounts. Reading a balance sheet with no profit figure.

A net asset figure below zero, shown with a minus sign on the face of the balance sheet. It means liabilities have overtaken the company. Not always immediately fatal, but one of the clearest distress signals you can read from public accounts.

Current assets (cash, and what is owed to the company due in soon) divided by liabilities falling due within a year. Above 1 means short-term resources cover short-term bills; most credit policies look for around 1.5. Below 1 is where cash strain tends to show.

Total liabilities as a proportion of total assets. A high figure can mean heavy borrowing, but not always: sometimes it is customer prepayments or deferred income rather than bank debt, so it is worth reading what the liabilities actually are before judging. A worked example where a poor ratio turned out benign.

A reduced set of accounts that smaller companies are permitted to file: the balance sheet goes in, the profit and loss account is left out. Legal, and used by the majority of UK companies, so for most companies you assess there will be no revenue or profit figure on record. How to assess a company with no profit and loss account.

Whether a company meets its Companies House obligations on time: accounts and confirmation statements filed by their deadlines. Most companies clear this baseline easily, but a pattern of late filing alongside financial strain is part of the picture of a company in trouble.

When a company’s liabilities due within a year exceed its current assets, the inverse of a healthy current ratio. It signals the company may struggle to meet near-term obligations from near-term resources.

The assumption that a company can continue trading for the foreseeable future. Where there is doubt, accounts may carry a material uncertainty related to going concern note, which is an explicit flag worth finding, though small companies are often not audited and so may carry no such note even when fragile.

A legal bar preventing someone from acting as a company director, usually following misconduct. A current or past disqualification among a company’s directors is a serious red flag and is publicly recorded.

The three main routes a company in serious trouble takes. The distinction matters less than the shared meaning for a creditor: money is owed and may not be recovered. They appear constantly in insolvency notices. What 100 real insolvencies looked like beforehand.