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Causes of over capitalisation
- Over issue of capital
- Promotion, formation or development during inflation.
- Buying assets of lower value at higher prices.
- High promotion expenses – preliminary expenses.
- Inadequate depreciation – leaves insufficient provision for replacement of assets.
- Liberal dividend policy –
- Taxation policy – high tax rates
- Inadequate demand for products – bring down the profitability
- Payment of high rate of interest
- Under estimation of capitalisation rate