Question

The results of over-trading may be ____________.

• A. Overcapitalization
• B. Liquidity
• C. Technical insolvency
• D. All of the above
• E. Both (B) and (C) above

Answer 1

The correct option is E Both (B) and (C) above

Over-trading occurs when there is a disproportionately high turnover of assets compared to the volume of sales. The high turnover is indicative of less amount of cash invested in current assets which can result in liquidity and might even lead to technical insolvency.

Hence option (E) is the correct answer.