Over-Capitalisation

Meaning of Over-Capitalisation:

Over-capitalisation refers to that state of affairs where earnings of a company do not justify the amount of capital invested in its business.

According to Gerstenberg, “A company is over-capitalised when its earnings are not large enough to yield a fair return on the amount of stock and bonds that have been issued, or when the amount of securities outstanding exceeds the current value of the assets”.