Overtrading happens when a business tries to do too much too quickly with too little term capital.

1. Rapid increase in turnover. 2. Rapid increase in the volume of current assets and possibly also fixed assets. 3. Inventory turn over and accounts receivable turnover might slow down. 4. Increase in inventories and accounts receivable greater than increase in sales. 5. Small increase in capital. 6. Increase in accounts payables and bank overdraft. 7. The proportion of total assets financed by capital falls and the proportion financed by credit sales rises. 8. The current ratio and quick ratio fall.

Balance sheet (A) Rs. Non-current assets Current assets Inventory60000 Accounts receivable64000 Cash Current liabilities Bank25000 Accounts payable Share capital10000 Income statement Sales Gross profit Net profit50000

Balance sheet (A)Balance sheet (B) Rs. Non-current assets Current assets Inventory Accounts receivable Cash Current liabilities Bank Accounts payable Share capital10000 Income statement Sales Gross profit Net profit

Balance sheet (A)Balance sheet (B) %age Increase/de crease Rs. Non-current assets % Current assets Inventory % Accounts receivable % Cash % % Current liabilities Bank % Accounts payable % % % % Share capital % Income statement % % Sales % Gross profit % Net profit %

Balance sheet (A)Balance sheet (B) %age Increase/de crease Rs. Non-current assets % Current assets Inventory % Accounts receivable % Cash % % Current liabilities Bank % Accounts payable % % % % Share capital % Income statement % % Sales % Gross profit % Net profit % Rapid increase in the value of current assets.

Balance sheet (A)Balance sheet (B) %age Increase/decr ease Rs. Non-current assets % Current assets Inventory % Accounts receivable % Cash % % Current liabilities Bank % Accounts payable % % % % Share capital % Income statement % % Sales % Gross profit % Net profit % Inventory turnover and accounts receivable turnover might slow down. Inventory turn over A/R turn over The rate of increase in inventories and accounts receivable would be greater than increase in sales.

Balance sheet (A)Balance sheet (B) %age Increase/de crease Rs. Non-current assets % Current assets Inventory % Accounts receivable % Cash % % Current liabilities Bank % Accounts payable % % % % Share capital % Income statement % % Sales % Gross profit % Net profit % There is a small increase in the paid up capital. Increase in accounts payables. Increase in bank overdraft.