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Overcapitalization and overtrading

Overcapitalization and overtrading. Overtading. Overtrading happens when a business tries to do too much too quickly with too little term capital. Symptoms of overtrading. Rapid increase in turnover. Rapid increase in the volume of current assets and possibly also fixed assets.

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Overcapitalization and overtrading

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  1. Overcapitalization and overtrading

  2. Overtading Overtrading happens when a business tries to do too much too quickly with too little term capital.

  3. Symptoms of overtrading • Rapid increase in turnover. • Rapid increase in the volume of current assets and possibly also fixed assets. • Inventory turn over and accounts receivable turnover might slow down. • Increase in inventories and accounts receivable greater than increase in sales. • Small increase in capital. • Increase in accounts payables and bank overdraft. • The proportion of total assets financed by capital falls and the proportion financed by credit sales rises. • The current ratio and quick ratio fall.

  4. Overtrading

  5. Overtrading

  6. Rapid increase in the value of current assets.

  7. Inventory turnover and accounts receivable turnover might slow down. The rate of increase in inventories and accounts receivable would be greater than increase in sales.

  8. There is a small increase in the paid up capital. • Increase in accounts payables. • Increase in bank overdraft.

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