What is the effect of overcapitalization on following parties?a.) Company b.) Shareholders c.) Consumers d.) Society

What is the effect of overcapitalization on following parties?a.) Company b.) Shareholders c.) Consumers d.) Society


a.) Company
b.) Shareholders
c.) Consumers
d.) Society

a.) Company

(i) It has a big impact on the company because of low profits the companies reputation is harmed.

(ii) The promotion of the company because difficult to do and the shares of the company can't be easily marketed.

(iii) Borrowings from other parties become hard due to decline of earnings by the company and due to this the reputation of the company goes down which in turn makes the company looses its credibility.

(iv) Company indulge in malpractices to retain its image for example manipulation of accounts to show high earnings.

(v) Company under the influence of low capital cuts down the expenditure on maintenance, replacement of assets and do the necessary cost cutting for example removal of the stuff etc.

b.) Shareholders

As the companies profit decreases the rate of earning of shareholders also decreases as they both are directly proportional to each other. Due to this problem only the market price of the share also go down. Due to over capitalization the shareholders positions become uncertain and their profits or earnings also been cut down. Share value also decreases and they can't be marketed correctly.

c.) Consumers

Consumers are the people who are buying the company shares so to cover up the companies earning the management indulges in wrong doing to increase or decrease the capital in quality on the paper. Return on the capital becomes low which gives the impression to the customer that the resource which company is using is not utilized in a right manner. Consumer starts questioning the credibility of the company due to their low earnings as the company fail to pay its creditors on time. It also has an effect on working conditions and payment of wages and salaries also lessen.

d.) Society

It has an effect on the society by speculating about the company which are under-performing and those people who buy the shares always remain in panic as what will happen to their investments which they have done. It has also an effect on working conditions and payment of the group of people working in the company which are going through this phase. The salaries of other groups in the companies also lessen down due to this.
What sort of remedies is available for companies to overcome the situation of over capitalization?
There are different sorts of remedies available for over capitalization which are as follows:-…
What are the effects of undercapitalization on following parties? a.)Company b.)Shareholders c.)Consumers d.)Society
The under capitalization in this one effect the company to bring the greater reputation for them and with greater earning their market shares also increases….
What are the indications of existence of undercapitalization in a company?
Undercapitalization is when the actual capitalization is lower than its proper capitalization as it is given by its earning capacity….
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Discussion Board
Income Statement or Profit/Loss Account
Basis of preparation

Income statement is prepared on the accruals basis of accounting which is primarily intended to depict the financial status of an entity. Thus, signifies the profit/loss of the entity although putting other factors at constant like the discipline of Business Management, Economics, Marketing where there are models in place like the ETOP, SWOT, PESTLE analysis and Michael Porter's 5 forces which are derived to indicate the status and in-collaboration with others to denote the entity status although in conjunction with competitors.

This means that income (including revenue) is recognized when it is earned rather than when receipts are realized (although in many instances income may be earned and received in the same accounting period).
Conversely, expenses are recognized in the income statement when they are incurred even if they are paid for in the previous or subsequent accounting periods.

Income statement does not report transactions with the owners of an entity.
Hence, dividends paid to ordinary shareholders are not presented as an expense in the income statement and proceeds from the issuance of shares is not recognized as an income. Transactions between the entity and its owners are accounted for separately in the statement of changes in equity.

Elvis Thubelihle Bhebhe
Bachelor of Commerce (Finance)
Elvis Thubelihle Bhebhe 03-4-2016
Components of Budget
The budget is essentially the reflection of the political decisions about how much to spend. The amount to be spent and the financing decisions are explicitly depicted upon how significant the impact or the implications upon the macroeconomic variables such as aggregate production, income, employment and price levels or even the distribution of income. Such variables ought to be incorporated when the budget is being prepared by the government. The government's fiscal policy seeks to support the structural reforms of South Africa or any nation to be precise, the economic constants, and the long-run, growth of employment opportunities and the equitable distribution of income. Thus, there are quite significant issues that may be observed in conjunction to this particularly the fiscal policy....Elvis Thubelihle Bhebhe B.Com-Finance degree Oval Internation University.
Thubelihle Elvis Bhebhe B.Com Finance de 09-28-2014
undercapitalisation

Adverse effects of undercapitalisation

This is when the company's actual rate is much higher than the general rate of earnings in the industry of trade. Thus, the market value would be much higher/ the price share would be much higher than the market value of similar companies in the same trade.

The causes are significantly seen to be the under estimating the company's initial earnings; The maintenance of high standards of efficiency in company operating; Creation of adequate reserves to cater for depreciation. For instance, large plough backs of profits resulting in surplus or more than adequate available funds for expansion and growth
This susbsequently results in management manipulating the share price
Encouragement of competition emanating from new companies entering the industry as they get attracted.
The workers may demand a higher pay rise
The consumers may feel exploited.
However, there are remides which incorporates the issue of bonus shares or raising par value shares.

Elvis Thubelihle Bhebhe

elvis thubelihle bhebhe - b.com-finance 11-29-2013

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