UK Accounting Glossary
Under-capitalisation refers to any situation where a business cannot acquire the funds they need.
The state of a company that doesn’t have sufficient capital or reserves appropriate for the size of it’s operations.
For example: this may be due to the company growing too quickly.
Although such a company may be generating profits it may also be unable to convert these profits, both sufficiently and swiftly into cash in order to pay it’s debts.
Undercapitalisation remains the primary reason for business failure within the U.S. today; this is closely followed by insufficient business knowledge and market awareness.
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This glossary post was last updated: 5th May 2019.