OVERCAPITALISATION Meaning and
Definition
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Overcapitalisation refers to a situation where a business or company has invested an excessive amount of capital or financial resources into its operations, resulting in an imbalance between the actual value of the assets and the earnings they generate. It occurs when the value of the company's assets is significantly greater than its ability to generate profits or returns on investment.
In an overcapitalised situation, the excessive investment may have been made in the form of long-term assets such as property, plant, and equipment, which do not provide a sufficient return on investment. This can lead to a decrease in the profitability of the business as the earnings generated are insufficient to cover the cost of the assets. It may also result in a decrease in the return on equity for the company's shareholders.
Overcapitalisation can have several negative consequences for a business. It can reduce the company's ability to generate profits and cash flow, leading to financial distress or even bankruptcy. Additionally, it can impact the company's ability to attract investors or secure financing, as lenders and shareholders may be hesitant to invest in a company with an inefficient capital structure.
To address overcapitalisation, businesses may need to re-evaluate their investment strategies, sell excess assets, or seek external financing to improve their capital structure and achieve a more optimal balance between earnings and capital invested.
Common Misspellings for OVERCAPITALISATION
- ivercapitalisation
- kvercapitalisation
- lvercapitalisation
- pvercapitalisation
- 0vercapitalisation
- 9vercapitalisation
- ocercapitalisation
- obercapitalisation
- ogercapitalisation
- ofercapitalisation
- ovwrcapitalisation
- ovsrcapitalisation
- ovdrcapitalisation
- ovrrcapitalisation
- ov4rcapitalisation
- ov3rcapitalisation
- oveecapitalisation
- ovedcapitalisation
- ovefcapitalisation
Etymology of OVERCAPITALISATION
The word "overcapitalisation" is formed by combining the prefix "over-" and the noun "capitalisation".
The prefix "over-" is derived from Old English "ofer", which means "above" or "beyond". It is added to verbs or nouns to indicate excess or to go beyond a specific limit or threshold.
The noun "capitalisation" comes from the verb "capitalise". "Capitalise" is formed by adding the verb-forming suffix "-ise" to the noun "capital". "Capital" originates from Latin "capitale", which means "property" or "wealth".
Therefore, "overcapitalisation" refers to the act of exceeding the appropriate or optimal level of investment in a company, such that it results in an excessive proportion of capital compared to the company's needs or earning capacity.
Similar spelling words for OVERCAPITALISATION
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