Business – 1.1 Enterprise – The nature of business activity | e-Consult

The retail firm’s downfall can be traced to several financial planning shortcomings:

• Over‑reliance on short‑term borrowing increased interest expenses and reduced cash flow flexibility.
• Poor inventory management led to high holding costs and frequent stock obsolescence.
• Insufficient budgeting for marketing during a competitive period caused a loss of market share.

Key financial ratios from the final two years before collapse highlight these issues:

The declining current ratio shows deteriorating liquidity, the rising debt‑to‑equity ratio indicates increasing financial risk, and the falling inventory turnover reflects inefficient stock management. Together, these metrics demonstrate how weak financial planning accelerated the company’s failure.