What is Overcapitalization?

A definition of Overcapitalization

“Overcapitalization occurs when a company raises more money through equity and debt than its assets are worth, leading to inefficient fund use.”

Overcapitalization in Business Glossary - What is an Overcapitalization?

Business Glossary > What is Overcapitalization?


Examples of Overcapitalization in a Sentence:

The firm suffered from overcapitalization, leading to decreased profitability.

Investors were wary of the company’s overcapitalization issues.

Overcapitalization forced the business to restructure its finances.

Why is Overcapitalization Important in Business?

Understanding overcapitalization is crucial for businesses to maintain financial health and efficiency. It can lead to reduced profitability, increased debt burden, and diminished shareholder value, all of which are detrimental to a company’s long-term success.

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Associated Terms

Here are some associated business terms and synonyms for “Overcapitalization”:

  • Excess Capitalization
  • Capital Inefficiency
  • Overfunding

General Motors Overcapitalization

In the early 1990s, General Motors was criticized for overcapitalization. The company had to undergo significant restructuring to align its production and capital structure, eventually restoring financial health and operational efficiency.

Final Notes on Overcapitalization

When companies face overcapitalization, they should consider adjusting capital structure, improving asset productivity, and optimizing operational efficiency to enhance overall financial health and competitiveness.


This has been a definition of Overcapitalization meaning.

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