Over Trading | Under Trading¶
| Aspect | Over Trading | Under Trading |
|---|---|---|
| Definition | A company engages in business activities beyond its financial capacity, leading to financial crises. | Funds are not fully utilized due to inefficient management, resulting in idle funds. |
| Causes | 1. Inflation and rising prices 2. Increased lock-up funds in stocks 3. Over-expansion |
Very high working capital Lower turnover ratio |
| Effects | - Increase in bank borrowings and loans - Decline in working capital position - Decline in profits |
- Reduced profits - Low rate of return on investments - Decline in share prices - Loss of goodwill |
| Remedies | - Cut down business operations and overspending - Arrange for additional funds |
- Improve management efficiency - Consider market expansion |
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