Updated: 11 March 2024

What Does Capitalization Mean?

Capitalization, in the world of finance, refers to the stocks, debt, and earnings of a company. In accounting, on the other hand, it means the value of an asset as it functions for a company over time, rather its value at the time when it was purchased.

Insuranceopedia Explains Capitalization

In finance, capitalization is the amount of money spent for business. That money can be a loan in the bank, savings, or earnings from a previous business that is spent for another business.

In accounting, capitalization happens when an item owned by a business can be translated as an asset. If it is not an asset, it is deemed to be merely an expense. An item that is purchased, used right away, and disposed of quickly is automatically considered an expense—the purchase of a pen for office use, for example. But an item that lasts longer, is expensive, and can serve a major purpose in the business over the long term can be called an asset. When a company erects a new building for its operations, for instance, that building becomes one of its assets.

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