Overcapitalization

When a company has issued more debt and equity than its assets are worth. An overcapitalized company might be paying more than it needs to in interest and dividends. Reducing debt, buying back shares and restructuring the company are possible solutions to this problem.

In the insurance market, overcapitalization occurs when supply exceeds demand, creating a soft market and causing insurance premiums to decline until the market stabilizes.

The opposite of overcapitalization is undercapitalization, which occurs when a company has neither the cash flow nor the access to credit that it needs to finance its operations. Undercapitalization most commonly occurs in companies with high start-up costs, too much debt and/or insufficient cash flow and can ultimately lead to bankruptcy.


Investment dictionary. . 2012.

Look at other dictionaries:

  • overcapitalization — (Amer.) n. excess valuation of wealth; excessive capitalization; provision of excess capital (also overcapitalisation) …   English contemporary dictionary

  • overcapitalization — Said to occur when a firm cannot service its debt even though its debt/ equity ratio is not excessive. Bloomberg Financial Dictionary * * * overcapitalized o‧ver‧cap‧i‧tal‧ized [ˌəʊvəˈkæpɪtl aɪzd◂ ǁ ˌoʊvər ] also overcapitalised adjective …   Financial and business terms

  • overcapitalization — A condition in which an organization has too much capital for the needs of its business. If a business has more capital than it needs it is likely to be overburdened by interest charges or by the need to spread profits too thinly by way of… …   Accounting dictionary

  • overcapitalization — A condition in which an organization has too much capital for the needs of its business. If a business has more capital than it needs it is likely to be overburdened by interest charges or by the need to spread profits too thinly by way of… …   Big dictionary of business and management

  • overcapitalization — noun see overcapitalize …   New Collegiate Dictionary

  • overcapitalization — where the amount of harvesting capacity in a fishery exceeds the amount needed to harvest the desired amount of fish at least cost. Too many boats, too much fishing effort. May be addition of new technology rather than new boats …   Dictionary of ichthyology

  • overcapitalization — See overcapitalize. * * * …   Universalium

  • overcapitalization — noun the state of being overcapitalized …   Wiktionary

  • overcapitalization — noun (business) too much capitalization (the sale of more stock than the business warrants) • Syn: ↑overcapitalisation • Derivationally related forms: ↑overcapitalise (for: ↑overcapitalisation), ↑overcapitalize …   Useful english dictionary

  • overcapitalize — overcapitalization, n. /oh veuhr kap i tl uyz /, v.t., overcapitalized, overcapitalizing. 1. to fix the total amount of securities of a corporation in excess of the limits set by law or by sound financial policy. 2. to overestimate the capital… …   Universalium

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