Overcapitalization

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Overcapitalization

Said to occur when a firm cannot service its debt even though its debt/equity ratio is not excessive.

Overcapitalization

A situation in which a company has too much capital. An overcapitalized company has an excessive amount of cash or liquid assets; it may find itself in a position, for example, of paying high dividends that it would have difficulty reducing in the future. Its earnings may or may not adequately reflect the capital invested in the company. An overcapitalized company may repay its debt or make a tender offer for shares in order to reduce its capital.
References in periodicals archive ?
The Company reported a larger fourth quarter loss than expected and also restated its previously issued financial results for the first three quarters of 2005, because the Company had over-capitalized software instead of charging those costs to product development expenses.
Best estimates that the industry remains over-capitalized by $100 billion, or 30%, relative to our minimum Secure rating level of "B+"--even after accounting for a 100-year catastrophe event.
In the prior year's third quarter, the corporation recognized a net credit to income of $293,000 as a consequence of a rebate from the Bank Insurance Fund, which had become over-capitalized.
Brehm's views reflect those of some leading insurance industry analysts, who say the insurance industry is significantly over-capitalized, which depresses rates and eventually returns for stakeholders.
Best's capital adequacy model (BCAR), the industry is over-capitalized by $100 billion when compared to the standards of our lowest "Secure" rating level of "B+"--even after accounting for the possible impact of severe catastrophes.
Many insurers have found themselves in such an over-capitalized position for the past five years that they engage in unprofitable price cutting to gain market share.