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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › working capital
sir what is difference between over-capitalization and over-trading
Over-capitalisation is when the working capital is too high (because, for example, we are taking too long to collect receivables).
Over-trading is when the company has been expanding rapidly and so with higher sales they are needing to accept higher receivables etc., but they have not raised more long-term capital to finance the extra working capital needed and so they are forced into having an overdraft and therefore potential liquidity problems.