What is under-capitalization in Business Studies?

The Under-Capitalization in Business Studies.

Under-capitalization refers to a state of insufficiency of capital. The state of under capitalization emerge from under-estimate of capital needs of the promoter and failure to provide necessary current finance by borrowings. The state of under-capitalization is undesirable because of the following reasons:

  • The company has to depend on outside always for finance.
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  • The market turn cannot be attained effectively due to insufficiency of working capital.
  • It facilitates fluctuations in securities and thereby encourage speculation.
  • The consumer cannot expect low prices for the goods.
  • The labourers cannot expect higher wages.
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