The symptoms of overtrading过量交易的特征
【知识点】The symptoms of overtrading过量交易的特征
The symptoms of overtrading
(a) There is a rapid increase in sales revenue.
(b) There is a rapid increase in the volume of current assets and possibly also non-current assets. Inventory turnover and accounts receivable turnover might slow down, in which case the rate of increase in inventories and accounts receivable would be even greater than the rate of increase in sales.
(c) There is only a small increase in equity capital. Most of the increase in assets is financed by credit, especially:
i. Trade accounts payable – the payment period to accounts payable is likely to lengthen
ii. A bank overdraft, which often reaches or even exceeds the limit of the facilities agreed by the bank.
(d) Some debt ratios and liquidity ratios alter dramatically.
i. The proportion of total assets financed by proprietor’s capital falls, and the proportion financed by credit sales.
ii. The current ratio and quick ratio fall.
iii. The business might have a liquid deficit; that is, an excess of current liabilities over current assets.