Overcapitalization and overtrading

This topic has 1 reply, 2 voices, and was last updated 2 weeks ago by IAW3005.

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April 8, 2026 at 11:24 am #725520
GAHUNDA
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for the question related to overcapitalization and overtrading when they doubled the size of their firm we got overdraft of $100 but they had $50 cash from last year period why didn’t this cash cover a half of the overdraft so they could have remained with overdraft of $50?
April 9, 2026 at 6:43 am #725524
IAW3005
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So the current level of cash is that needed for the current level of activity.
If the level of activity doubles then we are going to need twice as much cash.
The overdraft is the missing figure because the SOFP must balance.
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