7 Flashcards
What is overtrading?
Undertaking more business than can be conveniently supported by finance available.
Who changes interest rates?
Monetary Policy Committee of the bank of England
What two forms do covenants take?
Affirmative and negative
What is an affirmative covenant?
Things the borrower must comply with
What is a negative covenant?
Things the borrower must prevent from happening
Overtrading arises from what 3 managerial mistakes?
Initial under-capitalisation, over expansion and poor utilisation of working capital resources
What are signs of overtrading
Fall in debtors to creditors ratio. Frequent requests to increase borrowing, fall in working capital ratio.
Other than the customer where else can you obtain information?
Local newspapers, Gazette
When looking closely at debtors what should you request?
An aged list - Shows that debtors are being invoiced and collected promptly
Who’s job is it to monitor the banks exposure on a whole?
Senior executives
What should you look for when considering the proprietors’ stake?
At least cover the fixed assets with a margin towards financing working capital
What is meant by liquidity of the business?
Availability of cash to meet the needs of the business
In a manufacturing company, what provides permanent repayment of borrowing?
Retained profits after tax and dividends
What business is more vulnerable in an economic downturn?
Construction
What is a covenant?
Formal agreement to comply with certain conditions
