Capital
Rationing
Capital rationing is limited resources availability. Therefore,
we utilize our fund rationally to generate maximum return. In simple word is
best utilization of funds.
Types
of Capital Rationing
1. Hard Capital Rationing
It is imposed from the outside of the business. Banks are not willing to lend money to company.
Reason for not lending the money may be economy wise or company specific. Main
reason for hard capital rationing are as under
a.
Liquidity Crunch in the market
b.
Company has poor credit history
c.
High Gearing Ration
d.
Company is relatively new in the industry
2. Soft Capital Rationing
Management likes to avoid arranging
funds from outside. Soft capital rationing is against with concept of maximize wealth
because organization must undertake all project with positive NPV. Reason for
not undertaking the project may be
a.
Limited Management skill to manage multiple
project
b.
Focus some project to maximize the project
wealth
c.
More focus on the quality
d.
Interested only in large projects/ specific
type of project.
