Capitalization

See Also:
Company Life Cycle
Market Positioning
Insider Trading
Dispersion
Adjusted Present Value (APV) Method of Valuation
Capitalization Rate

Capitalization in Finance

In finance, capitalization in finance is the sum of a company’s debt and equity. It represents the capital invested in the company, including bonds and stocks.
Capitalization can also mean market capitalization. Market capitalization is the value of a company’s outstanding shares of stock. It also represents the value of the firm according to investors’ perceptions. It is equal to the number of shares outstanding multiplied by the share price.

Market Capitalization = Shares Outstanding x Share Price


[button link=”https://strategiccfo.com/know-your-economics-wkst?utm_source=wiki&utm_medium=button%20cta” bg_color=”#eb6500″]Download The Know Your Economics Worksheet[/button]


Capitalization in Accounting

In accounting, capitalization refers to recording costs as assets on the balance sheet instead of as expenses on the income statement. A company may record the purchase price of an asset, as well as the asset’s acquisition costs, such as transportation and setup, as assets on the balance sheet.
Capitalization in accounting also refers to transferring an off-balance-sheet operating lease onto the balance sheet and recording it as a capital lease. To do this, calculate the present value of the future operating lease payments and record the amount on the balance sheet as an asset with a corresponding liability.

Capitalization of Cost

For example, a manufacturing company may record the cost of raw materials, direct labor, and overhead as assets – where labor and overhead would be capitalized costs. The assets (including the capitalized costs) are then transferred to the income statement as costs of goods sold as the underlying assets are sold to customers. Capitalizing costs increases the value of total assets and equity on the balance sheet, as well as net income on the income statement.

If you want to add more value to your organization, then click here to download the Know Your Economics Worksheet.
Capitalization in Finance, Capitalization in Accounting
[box]Strategic CFO Lab Member Extra
Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
Capitalization in Finance, Capitalization in Accounting

ARTICLES YOU MIGHT LIKE

Mining the Balance Sheet for Working Capital

Mining the Balance Sheet for Working Capital Let’s face it… There has been significant liquidity in the marketplace over the past couple of years. Debt and equity capital has been relatively easy to find and commercial banks have been very willing participants as capital providers; however, many of the commercial banks have admitted that this robust marketplace

Read More »

Is Your Business Bankable?

Businesses call us for many reasons but here are two very common reasons why we get called… They are growing and want to strengthen the financial function. OR They are in financial distress and can’t find a way out. Why does a business need to be bankable? What does being bankable mean? In this blog,

Read More »

Alternative Forms of Financing

It happens all the time. Companies need capital, but they aren’t bankable. Banks or other financial institutions will not touch them because they are either too risky, not able to meet covenants, or it just doesn’t work out for some reason. So, where do those companies go? They need to look at alternative forms of

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

December 5-8th, 2022