The causes of over capitalisation
Over capitalisation of a concern is caused by the following reasons (a) Over issue of capital: Defective financial planning may lead to excessive issue of shares or debentures. This imposes a constant burden on earning of a company and earning becomes low. (b) Acquiring asset at inflatted price: Asset may be acquired at inflatted price or at a prices were at their peak. In this case, the real value becomes lower than the book value and the earning also becomes low. (c) Formation during boom period: If the establishment of new copr expansion of an existing concern takes place during the book period, it may be a victim of over capitalisation. This is because of all assets are acquired at fabulous prices. (d) Over estimation of earnings: The promoters or directors of a company may over estimate the earning of the company and raise capital accordingly. If a company is not in a position to invest this fund profitably, the rate of earning per share will be loss. (e) Inadequate deprecia