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Level 5 Diploma in Accounting and Business

Causes of Undercapitalisation and Overcapitalisation

AB502 · Financial Management — Week 10 of 16

CourseAB502
Week10 of 16
SemesterI
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This week’s topics

Causes of Undercapitalisation and Overcapitalisation

  1. Overtrading and rapid revenue expansion
  2. Inadequate initial equity base
  3. Idle cash reserves and inefficient asset utilisation
  4. Inaccurate earnings projections

What you will be able to do

  • 3.2 Explain the factors which lead to the undercapitalisation and overcapitalisation of a business.

Activity

Seminar, guided reading and a short written task: explain the factors which lead to the undercapitalisation and overcapitalisation of a business.

Study materials

Videos

  • Overcapitalisation and Overtrading - ACCA Financial Management (FM) · YouTube · OpenTuition · 12 min · for registered students

Further resources

  • Entrepreneurship, ch. 9: Entrepreneurial Finance and Accounting · PDF · OpenStax, textbook chapter; pp. 327–358 · for registered students
  • Introduction to Business 2e, ch. 16: Understanding Financial Management and Securities Markets · PDF · OpenStax, textbook chapter; pp. 551–584 · for registered students
  • Principles of Finance 2e, ch. 19.3: Cash management · PDF · OpenStax, textbook chapter; pp. 565–566 · for registered students
Materials marked “for registered students” open in the student portal, which is set up as soon as you receive final acceptance.
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Course plan
  • Week 1: Scope and Objectives of Financial Management
  • Week 2: Operational Functions of Financial Management
  • Week 3: Nature and Elements of Working Capital
  • Week 4: Working Capital Assessment and Funding Strategies
  • Week 5: Managing Working Capital: Cash and Liquidity
  • Week 6: Managing Working Capital: Receivables, Inventory, and Payab…
  • Week 7: Determinants of Capital Structure
  • Midterm: Midterm evaluation
  • Week 9: Capital Structure Theories and External Influences
  • Week 10: Causes of Undercapitalisation and Overcapitalisation
  • Week 11: Strategic Impact of Capital Imbalances
  • Week 12: Applying Financial Management in practice: case studies
  • Week 13: Assignment workshop: research, planning and referencing
  • Week 14: Assignment workshop: drafting, feedback and improvement
  • Week 15: Review and coursework completion
  • Final: Final assessment and submission
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