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Because it is likely to force the company into being overdrawn.
If you watch my free lecture on overtrading you will see what I mean in the illustration that I work through.
(The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.)
Sir! Thanks all clear.
I watched your lecture it,s because in over trading more current assets are financed by the short term debt capital rather than the long term or equity capital.
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