Question

difference between overcapitalisation and undercapitalization

Answer 1

Difference between overcapitalisation and undercapitalisation :

1.)Over capitalisation involves a great strain on the financial resources of a company whereas under cspitalisation implies high rate of earnings on its shares.

2.)Remedial procedure of over capitalisation is more difficult and expensive as compared to undercapitalisation .

3.)Overcapitalisation is a common phenomenon then undercapitalisation .

4.)Undercapitalisation brings a cut throat competition among companies .

Answer 2

Difference between overcapitalisation and undercapitalisation

Explanation:

Overcapitalisation- It is a situation where the total of par value of shares and debentures of company is more than the true value of fixed assets of the company. It does not mean that the company has excess of capital, in fact if the earning are lower than the expenses of the company then it is called overcapitalized.

Undercapitalisation-  It is just the opposite of overcapitalisation, where the the par value of all the shares and debentures of the company is less than the true value of the fixed assets of the company. this generally occurs in well established companies who have good amount of fixed capital.

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difference between overcapitalisation and undercapitalization

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