Question

What do you mean by over-capitalization? Discuss the effects of over capitalization and suggest some remedy to overcome them?

Answer 1

Capitalisation means situatiin where a firm has more capital than it catered-for or needs. Thus, its assets are worth less than its issued share capital, and the earings are insufficient to pay dividend and interest. This situation is remedied generally by buying back issued shares ( stock ) or by paying off debt