Causes of Over Capitalization
A company is said to be overcapitalized, when its total capital exceeds the true value of its assets. Causes of Over Capitalizations are turn down in the earnings of the company. Drop in dividend rates. Market value of company’s share falls, and company loses investors confidence. Company may collapse at any time because of weak financial conditions – it will affect its employees, society, consumers and its shareholders.
Over-capitalization and Under-capitalization: The total amount of funds available to an undertaking should be neither too much nor too low. An important question, therefore is the question of capitalization of the company, i.e., the determination of the amount which the company should have at