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Difference between over capitalization and under capitalization?

Answer:

Overcapitalization

A company is said to be overcapitalized, when its total capital (both equity and debt) exceeds the true value of its assets. It is wrong to identify overcapitalization with exess of capital because most of the overcapitalized firms suffer from the problems of liquidity.

Undercapitalization

Under-capitalization is just the reverse of over-capitalization. A company is considered to be under-capitalized when its actual capitalization is lower than its proper capitalization as warranted by its earning capacity.

First answer by ID1950643547. Last edit by ID1950643547. Question popularity: 2 [recommend question].

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