What do you meant by overtrading, Financial Econometrics

Assignment Help:

Q. What do you meant by Overtrading?

When a company is trading large volumes of sales very quickly, it may also be generating large amounts of credit sales and consequently large volume of trade receivables. It would also be purchasing large amounts of inventories on credit to maintain production at the same rate as sales and so have large volumes of trade payables. This will extend working capital cycle which will have an adverse effect on cash flow. If company doesn't have enough working capital, it will find it difficult to continue as there would be insufficient funds to meet all costs as they fall due.

Overtrading takes place when a company has inadequate finance for working capital to support its level of trading. Company is growing rapidly and is trying to take on more business that its financial resources permit hence it is "under-capitalised". Overtrading usually occurs in businesses which have just started to trade and where they may have suddenly begun to experience rapid sales growth. In this circumstances it is quite easy to place high importance on sales growth while neglecting to manage the working capital.


Related Discussions:- What do you meant by overtrading

Prepare a cash budget statement, Loudfire Safaris have requested you to pre...

Loudfire Safaris have requested you to prepare a cash budget for the period ending 31 March 2013. The following projections have been made for the next 4 months

Explain the theoretical impact on the risk discount rate, Question : A ...

Question : A proprietary life company issues only non-profit guaranteed growth bonds. The company invests only in equities with an expected return of 10% p.a, the risk free rat

Analyse the finance costs, The Citilink Bus Company ("Citilink") was establ...

The Citilink Bus Company ("Citilink") was established in 2000 to operate a bus service across a city with 1 million inhabitants. The bus company was created by an indigenous busin

Calculate the expected value, Gabi wishes to purchase an apartment in Berea...

Gabi wishes to purchase an apartment in Berea Johannesburg which is situated in a quiet street. The purchase price, including costs, is R355 000 and she wishes to obtain a 100% mor

Conservative policy for financing working capital, Q. Conservative policy f...

Q. Conservative policy for financing working capital? A conservative policy for financing working capital is one where short-term finance is usedto fund: A : All of the flu

Determine average excess return, What do you notice about the alphas and be...

What do you notice about the alphas and betas calculated using the various methods? Using the alpha and beta you calculated for stock 4 along with the average excess return on the

Calculate correlation coefficient, Question The variance of Stock A is ...

Question The variance of Stock A is .004, the variance of the market is .007 and the covariance between the two is .0026. What is the correlation coefficient?

Economy System, What are the four basic elements found in all economic syst...

What are the four basic elements found in all economic system?

Is the investment attractive, During and economic downturn, we can acquire ...

During and economic downturn, we can acquire another company by purchasing its stock for $6 billion. The company is earning $700 million a year, which is available for dividends, a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd