POINTS TO REMEMBER
  1. What is capitalisation?
    • Capitalisation means magnitude of capital employed in a firm. It is based on the size and value of assets and also on the capitalisation rate.

     

  2. What is over-capitalisation? When does it arise?
    • Over-capitalisation exists when poor earnings do not justify large amount of capital.
    • It emerges when assets are bought at higher prices; when firm set up during boom faces depression; and when earnings drop.
  3. What are the effects of over-capitalisation?
    • Weak financial position
    • Fallen market value of shares
    • Poor quality/higher price of products
  4. What is under-capitalisation? When does it arise?
    • Under-capitalisation means value of assets being small in relation to the firm’s earnings
    • It occurs (a) when ...

Get Fundamentals of Financial Management, Third Edition now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.

Start your free trial