Overtrading
Short definition
Overtrading is sales growing faster than working capital and the cash buffer can support. Profit rises while cash and lines shrink; AR and inventory bloat, DPO is stretched.
Detailed explanation
The mechanics: even with days flat, more sales grow the OWC amount. A thin margin means each extra 1 TL of sales needs more cash. If collections stretch or stock is built, the need accelerates. Short loans hide the gap until a rollover or a covenant stops it.
Signs: EBITDA up, OCF down; DSO/DIO up; liquidity headroom down; supplier delays. That is not a commercial success; it is a funding gap.
Why it matters for the CFO
If the growth target is not capped by cash capacity, the firm stops while profitable. Banks read overtrading as a reason to cut appetite.
How to read it
Sales growth above sustainable growth (retained cash plus permitted leverage) is an overtrading candidate. There is no universal percentage; WCR/sales and collection quality set it.
Related calculators
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Definitions are educational. They are not investment, credit or tax advice.