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A. On company:
1. Loss of Goodwill
2. Poor creditworthiness
3. Decline in the efficiency
4. Difficulties in obtaining capital
5. Liquidation of company
Causes of Over-Capitalization.
A. On company:
1. Loss of Goodwill
2. Poor creditworthiness
3. Decline in the efficiency
4. Difficulties in obtaining capital
5. Liquidation of company
B. Effects on shareholders.
1. Reduced dividends
2. Fall in the value of shares
3. Loss of faith/trust
4. Loss advantages as collateral security
Under-capitalization
Under-capitalization refers to any situation where a business
cannot acquire the funds they need. An under-capitalized business may
be one that cannot afford current operational expenses due to a lack of
capital, which can trigger bankruptcy, may be one that is over-exposed
to risk, or may be one that is financially sound but does not have the
funds required to expand to meet market demand.
(v) If a company is earning higher profits, the customers may feel that
they are being overcharged by the company.
(ii) The value of its equity share in the market will go up.