Problem
You are provided with the following information about a business:
• The sales of the business has increased over the past financial year;
• The gross profit of the business has increased;
• The payment periods for accounts receivable has decreased; and
• The payment periods for accounts payable has increased.
Consider the possibility of overtrading. Provide possible reasons for each of the above mentioned changes in the financial figures and conclude your answer by indicating whether each of the above mentioned changes should be regarded as good or bad.