Meaning of under Capitalisation? The symptoms of under Capitalisation? The causes of under Capitalisation?
Under Capitalisation is just reverse of over capitalisation. A company is under capitalised of the real value is higher than the book value of its assets. In other words under Capitalisation occurs when a company's actual capitalisation is lower than its proper capitalisation. Thus, the phase under Capitalisation should never be misconstructed with inadequate of capital. Under Capitalisation is an index of effective and proper utilisation of funds employed in the enterprise. According to S.W. Gerstenberg, " A company may be under capitalised when the rate of profits it is making on the total capital is exceptionally high in relation to the return enjoyed by similarly situated companies in the same industry." According to Bonneville and Dewey," When a corporation earns exceedingly high income on its capital, it is said to be under capitalised." Thus, under Capitalisation is associated with an effective utilisation of investmen