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Compare Over capitalization & under capitalization..
- Over capitalization is a state where earnings are not sufficient to justify the fair return on the amount of share capital which has been issued by the company whereas under capitalization is a state where the capital which is owned by the business is much less than the borrowed capital.
- Over capitalization happens when the actual profits of a company are not enough or sufficient to pay interest to the creditors whereas under capitalization happens due to over-trading and when the company earn high profits as compared to other industry.
- Over capitalization shows the rate of return as declining entity whereas undercapitalization shows the rate of return as increasing entity.
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