Financial Management: Meaning, Scope, Objectives & Functions
February 21, 2025
2017 has been an exceptional year for stock markets across the world. The start of 2018 has been no different at all. This has got many people wondering whether we are in a manic phase. There is no reason why this possibility should be ruled out. The Dow Jones Index has seen an uptick in […]
The purpose of commercial banking is to help corporations meet their funding needs in a better manner. Commercial banks help companies do this in several ways. One such way is related to the concept of reverse factoring. Reverse factoring is a solution that helps large corporations manage their supply chains better by helping optimize the […]
Planning is an essential function that the founder of a startup company needs to perform. However, this planning is often done informally. If a startup founder is not reaching out to investors to raise funds, there is a very low chance that they will have a well-documented financial model in place. However, empirical data shows […]
Pension funds typically cater to people investing for their retirement. When it comes to retirement planning, most people stay conservative. Hence, pension funds were not allowed to invest in risky and unstable assets. However, the past decade or so has led to the creation of a new risky asset class. For many years, cryptocurrencies have […]
The United States of America is full of people who have huge student loan debt, credit card debt, and mortgage debt. There are many reasons which can be attributed to this massive increase in personal debt. However, the inability to completely understand and apply the concept of earnings power is also an important reason which […]
Capitalization comprises of share capital, debentures, loans, free reserves,etc.
Capitalization represents permanent investment in companies excluding long-term loans.
Capitalization can be distinguished from capital structure. Capital structure is a broad term and it deals with qualitative aspect of finance. While capitalization is a narrow term and it deals with the quantitative aspect.
Capitalization is generally found to be of following types-
Overcapitalization is a situation in which actual profits of a company are not sufficient enough to pay interest on debentures, on loans and pay dividends on shares over a period of time. This situation arises when the company raises more capital than required. A part of capital always remains idle. With a result, the rate of return shows a declining trend. The causes can be-
An undercapitalized company is one which incurs exceptionally high profits as compared to industry. An undercapitalized company situation arises when the estimated earnings are very low as compared to actual profits. This gives rise to additional funds, additional profits, high goodwill, high earnings and thus the return on capital shows an increasing trend. The causes can be-
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