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Hello Sir!
I have been looking for the indicators of Overcapitalization and overtrading and what is the different between two with their effects on working capital?
Please explain this to me!
Overcaoitalisation is where the overall level of working capital is too high. The indicators are that ratios such as receivables days are higher that other companies in similar businesses.
Overtrading is where the level of working capital is too low. Indicators are that the company has been expanding rapidly without providing for the need to carry extra inventory, receivables etc..
These are explained (with examples) in my free lectures on working capital.
The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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