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

Options, Four European vanilla Call options ()iC· on an underlier with no i...

Four European vanilla Call options ()iC· on an underlier with no interim cash flows, have identical maturity T. Their strike prices iK are such that 1234KKKK A trader buys ()1CK an

Calculate the length of dx''s working capital cycle, DX had the following b...

DX had the following balances in its trial balance at 30 September 2006: Trial balance extract at 30 September 2006 $000    $000 Revenue

Chapter , a debit is used to record

a debit is used to record

Threshold cointegration, I need to conduct bivariate tests using two regime...

I need to conduct bivariate tests using two regime threshold cointegration for nonlinear relations. I have the code but it will nee some modification. Is there someone can help?

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

Working capital cycle for a trade, Working capital cycle for a trade ...

Working capital cycle for a trade Inventories days (time inventories are held before being sold)   +   Trade receivables days (how long the credit

What is over-capitalisation, Q. What is Over-capitalisation? Over-capi...

Q. What is Over-capitalisation? Over-capitalisation This is the opposite of over trading. It means a company has a large volume of inventories, cash balances and trade re

The Costs of Production, •Using MS Excel or a table in MS Word, complete Ta...

•Using MS Excel or a table in MS Word, complete Table-1 (Joseph Farms, Inc., Cost and Revenue Data). ?Assume that the price is $165. ?Assume the fixed costs are $125, at an output

Host and home government tax policies, Gujistan charges foreign companies c...

Gujistan charges foreign companies corporation tax at a preferential tax rate of 15 percent for the first five years, rather than the normal rate of 35 percent. PASE plc currently

Acceptance sampling, Acceptance Sampling is a statistical measure used in q...

Acceptance Sampling is a statistical measure used in quality control. A company cannot test all of its products because of ruining the products, or the volume of products being ver

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