Capitalization Question: Download Questions PDF
Explain what are the indications of existence of undercapitalization in a company?
Undercapitalization is when the actual capitalization is lower than its proper capitalization as it is given by its earning capacity. Undercapitalization is indicated by the condition above and when the rate of earning is very high in effect to the returns which other companies get which are in the same industry as others. This is also indicated when a company does not have sufficient capital to conduct normal business operations and they have to pay the people from whom they have taken. When a company doesn't generate enough cash flow to access the forms then it is said to be undercapitalized.
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