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Hi Sir John,
Can I be clarified with this as I am a bit confused? As overtrading means a low working capital, why is it that an increase in sales revenue is a symptom of overtrading as this might mean either increase in cash or receivables, thereby increasing the working capital?
Thank you in advance.
Additionally, relative to this query for clarification.
Does overtrading corresponds to aggressive approach?
A rapid increase in sales is just a possible symptom of overtrading. If sales increase rapidly then if they have not planned properly then they might be forced into a large overdraft, Higher sales will mean more receivables, but it takes time to get the cash from the receivables.
Please watch my lectures where I explain all of this.And no, it does not correspond to an aggressive approach. An aggressive approach is where a company deliberately decides to use more short-term finance. Overtrading is where they have been forced into it by bad planning.
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