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Can you give an clear definition about ” Overtrading”, Agency theory ? Which chapter in F9 cover this ? thanks
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OVERTRADING – This result when a business working capital requirement is not sufficient to meeting up with the level of trading activities. The signal includes lack of adequate cash flow to meet up with business expenses as they fall due, extention of credit period from supplier beyond the agreed terms, long working capital cycle than suitable etc.
Agency Theory – This theory explains the divergence of the relationship and interest between the management of business enterprise and its ownership in form of a public limited liability company. The agency theory suggest that the relationship can be likened to that of a principal and agents. i.e the shareholds of the company are the principal while the directors of the company are the agents directing the affairs of the company in the interest of the shareholders
Thanks tiretemi for your answer but could you tell me which chapter in F9 cover the Agency theory? pls
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