## Over-Capitalization vs Under-Capitalization
Both conditions are undesirable, but they differ in severity and how easily they can be fixed.
| Aspect | Comparison |
|---|---|
| Overall conclusion | Both are problematic, but over-capitalization is more dangerous to the company, shareholders, and society. |
| Ease of handling | Under-capitalization is easier to manage — it is more about adjusting the capital structure than an economic problem. |
| Danger level | Under-capitalization is less dangerous than over-capitalization, but both are undesirable. |
### Key takeaway
Every company should aim for proper capitalization — neither excess nor deficiency. Over-capitalization is the more serious of the two because it reflects an underlying earnings problem, whereas under-capitalization is largely a structural adjustment issue.