Micrex Computers Ltd was established in 1999 to sell a range of computer software to small businesses. Since its incorporation, the business has grown rapidly and demand for its products continues to rise. The most recent financial accounts for the company are set out below:

Required

(a) What do you understand by the term ‘overtrading’, and what are the possible consequences of this type of activity?

(b) What are the main causes of overtrading, and how might the management of a business overcome the problem of overtrading?

(c) Use financial ratios for Micrex Computers Ltd that you believe would be useful in detecting whether the company was overtrading. Explain the significance of each ratio you calculate.
(Certified Diploma)