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.