What is "overtrading"

Overtrading \O`ver*trad"ing\, n. The act or practice of buying goods beyond the means of payment; a glutting of the market.

vb. (present participle of overtrade English)

Overtrading is a term in financial statement analysis. Overtrading often occurs when companies expand their own operations too quickly (aggressively). Overtraded companies enter a negative cycle, where an increase in interest expenses negatively impacts the net profit, which leads to lesser working capital, and that leads to increased borrowings, which in turn leads to interest expenses and the cycle continues. Overtraded companies eventually face liquidity problems and/or run out of working capital.