Growing of the Business Too Fast Resulting Overtrading: How to Overcome Using Pareto Principle

Abstract

This project report investigates overtrading, which is the result of an expansion rate that is too high in relation to a particular business’s structure. It often results in cash flow Problems. The phenomenon of overtrading is described considering the current situation of one of the biggest trading and manufacturing companies in Sri Lanka. In this study, I basically focused on the excessive investment on inventory and poor product management techniques due to non compliance with the 80-20 rule known as Pareto principle. As a result of this non compliance, it was identified that company faces severe cash flow problems especially in last three years.The study reveals that the concerned company has overtraded and their rapid expansion was the main reason for this situation. Basically as a result of excessive investment of inventory, the entire operating cycle has been badly affected. The study was able to identify the reasons, repercussions and solutions for the overtrading situation of the company and necessary recommendations have been given to the Board of Management for proper implementation.