RECAPITALISATION Meaning and
Definition
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Recapitalisation refers to the process by which a company or financial institution increases its capital base or financial standing. It involves restructuring an organization's financial structure by raising additional funds, often through the issuance of new stock or shares, in order to strengthen its financial position.
The main purpose of recapitalisation is to enhance a company's liquidity and solvency. By injecting fresh funds into the company, it can improve its ability to meet short-term financial obligations and continue its operations effectively. This can be achieved through various methods such as a rights issue, wherein existing shareholders are given the opportunity to purchase additional shares at a pre-determined price. The proceeds from the issuance of these new shares are then utilized to pay off debts, invest in new projects, or support ongoing operations.
Recapitalisation can also be employed as a measure to restore financial stability in the banking sector. In times of economic crisis or financial distress, banks may undergo recapitalisation to bolster their capital requirements and protect against potential future losses. This is often done by injecting funds from the government or outside investors, or by converting debt into equity.
Overall, recapitalisation serves as a strategic financial approach to strengthen and reorganize a company's financial structure by increasing its capital base, thus improving its ability to meet financial obligations and sustain its operations.
Etymology of RECAPITALISATION
The word "recapitalisation" is a compound word derived from two main components: "re-" and "capitalisation".
1. "Re-" is a prefix that indicates repetition or again. It comes from the Latin prefix "re-" meaning "back" or "again".
2. "Capitalisation" is derived from the word "capital". "Capital" has several meanings, one of which refers to financial assets, wealth, or investment. "Capital" itself comes from the Latin word "caput" meaning "head".
Therefore, "recapitalisation" combines the prefix "re-" indicating repetition or again, with "capitalisation", referring to the act of increasing or acquiring financial assets or investment. In financial context, recapitalisation typically refers to the process where a company raises additional funds or restructures its capital to improve its financial position.
