August 21, 2019

What is Capitalization?

  • Derived from the word capital.
  • In common practice it refers to the total amount of capital employed in a business.
  • Capitalization deals with quantitative aspects of finance.
  • Refers to the long term indebtedness and includes both the ownership capital and the borrowed capital.
  • Means total par value of all the securities, i.e, shares and debentures issued by a company and reserves, surplus and value of all other long term obligations.
  • Value of ordinary and preference shares
  • Value of all surplus – earned and capital
  • Value of bonds and securities
  • Value of long term loans
  • Sum of all long term funds available to the firm along with the free reserves.
  • Capitalization = Share capital + Debenture + Long term borrowing + Reserve + Surplus earnings.

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