Overcapitalization occurs when a company has issued more in debt and equity than its assets are worth. If this is the case, the market value of the company is less than the total capitalized value of the company.

What is over and under capitalization?

Over capitalization is a state where earnings are not sufficient to justify the fair return on the amount of share capital which has been issued by the company whereas under capitalization is a state where the capital which is owned by the business is much less than the borrowed capital.

How do you calculate over capitalization?

5,00,000 + 2,50,000) = Rs. 7,50,000 are considered, the fixed assets of the company exceed by 8,00,000—7,50,000) = Rs. 50,000 and is symptom of under-capitalisation; but if reserve fund (which is of a fixed nature) is also taken into account, the fixed assets are less by (Rs. 9,00,000-8,00,000) = Rs.