13
Capitalisation
OBJECTIVES
To explain the concept of capitalisation
To discuss the meaning, causes and effects of over-capitalisation
To discuss the meaning, causes and effects of under-capitalisation
To focus on the ways designed to achieve optimal capitalisation
The financing decision in a firm involves two basic issues. The first is concerned with the amount of capital employed in a firm which is often referred to as capitalisation. The other is related to the proportion in which different forms of capital make up the firm’s capital structure. The present chapter deals with the first of these issues. The discussion of the second will find place in the next chapter.
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