Over Capitalization occurs when a company has more capital than it can efficiently use, resulting in lower returns and reduced profitability.
Over Capitalization happens when a company’s earnings are not sufficient relative to its capital base. This may occur due to excessive borrowing, issuing too many shares, or poor financial planning.
As a result, the company may struggle to generate adequate returns for shareholders, leading to lower share prices and investor dissatisfaction.
"A company raises ₹100 crore but generates profits suitable only for ₹60 crore capital—this indicates over capitalization."