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Thank you Zeeshan for letting me the opportunity to Tell about Over Trading.
Firstly I would like to tell you what is meant be overtrading. Overtrading means where a company does more business than its Finances allows and it mostly occurs when a company expands its operation without insufficient resources.
Reasons of Over Trading:
1. Inflation
2. Increase in Stocks.
3. Purchase of Fixed Assets out of short term funds.
4. Decline in working capital ratio.
5. Decline in rate of gross and net profit.
6. Increase in bank borrowings.
I hope this will help you in understanding what is over trading.
The main symptom of over trading is extra ordinary increase in sale and no backup.
Short of working capital.
Increase in Payable.
High interest rate.
High gearing ratio.
Low current asset and quick ratio.
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