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hi everyone,
can u tell me what is the problem of rapid growht organisation?
suddenly i have question about this and i cannot completely get the answer from the web or books. so can u share your knowledge to me please? ^^Hi
I believe that this is overtrading.
Overtraded companies enter a negative cycle, where increase in interest expenses negatively impact net profit, which leads to lesser working capital and hence to increased borrowings.
This leads to more interest expense and the cycles continues. Overtraded companies eventually face liquidity problems and/or running out of working capital.Other problems facing overtrading companies:
– Limited business knowledge
– Having large amount of unpaid debtors.
– Overstock or slow movement of inventory
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