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

Calculate weighted average cost -determine relevant risk , 1. Apply investm...

1. Apply investment appraisal techniques to project cash flows in different business scenarios and in situations of uncertainty, to arrive at investment decisions and to evaluate t

Limitation in explaining exchange rates, Question 1: (a) Explain the La...

Question 1: (a) Explain the Law of One Price and discuss its limitation in explaining exchange rates. (b) According to you, what factors determine exchange rates in the long

Reciprocal of inventory days, Inventory turnover is the reciprocal of inven...

Inventory turnover is the reciprocal of inventory days. (Cost of sales/Average inventory)x number of times This shows how quickly inventory is being sold. It illustrates the

Exchange and inflation rates, The Gujistan dollar until January 1st 2009 wa...

The Gujistan dollar until January 1st 2009 was pegged to the USA dollar. As at 31st December 2008, the official spot rate between the two currencies was G$0.6147 = US$1, while the

APPLIED FINANCIAL ECONOMETRICS, Question 1 Suppose that you have 150 obser...

Question 1 Suppose that you have 150 observations on production (yt) and investment (it), and you have estimated the following ADL(3,2) model: (1 – 0.5L – 0.1L2 – 0.05L3)yt = 0.7

Working capital cycle - cash cycle, Working capital cycle measures the time...

Working capital cycle measures the time between paying for goods supplied to you and final receipt of cash to you from their sale. It is desirable to keep this cycle as short as po

Maximize total revenue, The demand equation for Good Y is given by      ...

The demand equation for Good Y is given by             P = 900/q - 0.48q + 100       q > 0 In this question use derivatives to explore the relationship between the demand for

What do you mean by acquistions - takeovers, Q. What do you mean by Acquist...

Q. What do you mean by Acquistions - takeovers? Acquistions / takeovers: an essential feature of the merger through the absorption as well as consideration in the combination t

Find out the portfolio weight, Question You have a portfolio consisting...

Question You have a portfolio consisting solely of stock A and stock B. The portfolio has an expected return of 10.2%. Stock A has an expected return of 12% while stock B is ex

Determine the time zero value of the swap, You have been provided with the ...

You have been provided with the following information on a fixed-fixed USD-GBP currency swap, thespot exchange rate between USD and GBP, and the USD and GBP yield curves:

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