Business Definition for: capitalization
capitalization
- total amount of the various securities issued by a corporation. Capitalization may include bonds, preferred and common stock.
- a technique used by real estate appraisers to convert the income of a property into a value estimate for that property.
capitalization
capitalization
capitalization
in finance, a process whereby anticipated future income is converted to one lump sum capital value. A
capitalization rate
is divided into the expected periodic income to derive a capital value for the expected income. Sum of
interest rate
and
recapture rate
. See
capitalization rate
.
Example: A property is expected to produce an annual income of $10,000. It is judged to have a value of $80,000, which represents capitalization of the $10,000 per year income stream. Also, when taxes on the property increased by $500 per year, the property's value was reduced by $6,000 due to the capitalization process.
in accounting, setting up an
asset
on the financial records, rather than deducting it currently.
Example: Capitalization is required for an asset that has a 15-year
depreciable life
; the cost will be deducted over that time period, not deducted currently.
Related Terms:
composition of common stock, preferred stock and the various classes thereof, retained earnings, and long-term debt maintained by the business entity in financing its assets. However, not everybody agrees that long-term debt is part of the capital structure. Proponents say it finances long-term assets. Opponents say it is debt-due to creditors-which means it has significantly different characteristics compared to any form of owners' equity.
value of a corporation as determined by the market price of its issued and outstanding common stock. It is calculated by multiplying the number of outstanding shares by the current market price of a share. Institutional investors often use market capitalization as one investment criterion, requiring, for example, that a company have a market capitalization of $100 million or more to qualify as an investment. Analysts look at market capitalization in relation to book, or accounting, value for an indication of how investors value a company's future prospects.
to charge an expenditure to an asset account because it benefits a period in excess of one year. For example, a betterment to a machine would be capitalized to the machinery account.
value of a corporation as determined by the market price of its issued and outstanding common stock. It is calculated by multiplying the number of outstanding shares by the current market price of a share. Institutional investors often use market capitalization as one investment criterion, requiring, for example, that a company have a market capitalization of $100 million or more to qualify as an investment. Analysts look at market capitalization in relation to book, or accounting, value for an indication of how investors value a company's future prospects.
- convert a schedule of income into a principal amount, called capitalized value, by dividing by a rate of interest.
- issue securities to finance capital expenditure (rare).
- record capital outlays as additions to asset accounts, not as expenses. See also capital expenditure.
- convert a lease obligation to an asset/liability form of expression called a capital lease, that is, to record a leased asset as an owned asset and the lease obligation as borrowed funds.
- turn something to one's advantage economically-for example, sell umbrellas on a rainy day.
Referring Terms:
Copyright © 2005, 2000, 1995, 1987 by Barron's Educational Series, Inc., Reprinted by arrangement with Publisher.
Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
