When a UK company files their annual accounts at Companies House, they submit a structured document containing their balance sheet, profit and loss account, cash flow statement, and notes to the accounts. For credit professionals, this is the most reliable source of financial truth available — but reading it effectively takes practice.
Start with the balance sheet
The balance sheet tells you what the company owns (assets) and what it owes (liabilities) at a single point in time — the accounting date. The key figure for credit risk is net assets: total assets minus total liabilities. A company with negative net assets is technically insolvent, even if it's still trading.
- Net assets > 0: The company has more assets than liabilities — a positive sign
- Net assets < 0: The company owes more than it owns — a significant red flag
- Cash and equivalents: Look for cash held at the accounting date — a company with £0 cash despite positive net assets may have liquidity problems
The going concern note
This is the most important thing to check in the notes to the accounts. Auditors are required to state whether they believe the company can continue trading for at least 12 months. A 'material uncertainty over going concern' note is the most serious warning sign in any set of accounts — it means the auditors have doubts the company will survive.
Even without an explicit going concern note, read the accounting policies section. Phrases like 'management have reviewed cash flow forecasts' or 'the company is dependent on continued support from its parent' can indicate hidden stress.
Director loans and related party transactions
Check the notes for loans to or from directors. A large loan to a director (the director owes the company money) that has been outstanding for multiple years can indicate the company's cash is being used to fund personal expenses. Related party transactions with businesses controlled by directors can also obscure the true financial position.
Using FilingTrace to automate this analysis
Reading every set of accounts manually takes 30–60 minutes per company. FilingTrace automates this process using Claude AI — it reads the actual filed PDF, extracts the key figures, identifies going concern notes, and produces a structured risk assessment in under 30 seconds.