"Optimum capitalization is desired to maintain robust financial health of an enterprise." Identify the symptoms of over capitalization or under capitalization.

A company is said to be over capitalized when its earnings are not sufficient to justify a fair return on the amount of share capital and debentures that have been issued. Over capitalisation does not mean surplus of funds. It is quite possible that a company may have more funds and yet have low earnings. Over capitalisation may take place due to - exorbitant promotion expenses, inflation, shortage of capital, inadequate provision of depreciation, high corporation tax, liberalised dividend policy etc. Over capitalisation shows negative impact on the company, owners, consumers and society. On the other hand, a company is said to be under capitalised when its actual capitalisation is lower than its proper capitalisation as warranted by its earning capacity. This happens in case of well established companies, which have insufficient capital but large secret reserves in the form of considerable appreciation in the values of fixed assets not brought into books. Under capitalization is prominent when owned capital is far less than borrowed capital and the business is more dependent on borrowed funds discharging higher fixed costs leaving less, no or even negative margin for the shareholders.