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Glossary

Capitalization

Capitalization refers to the overall market value of a firm based on its outstanding shares and share price, and also to an accounting method where costs are added to an asset’s value and expensed over its useful life.

Luca Moschini

— 1 min read

Definition

Capitalization has two primary meanings in finance and accounting. In markets, it refers to a company’s market capitalization, which represents the total market value of its outstanding shares.

In accounting, capitalization describes the practice of including certain costs in the value of an asset and deducting those costs over the asset’s useful life, rather than expensing them immediately.

How It Works

In market terms, capitalization is calculated by multiplying the number of outstanding shares by the current share price. This calculation reflects how the market values a company at a given moment.

In accounting terms, capitalization occurs when a cost is added to an asset’s recorded value. That cost is then deducted gradually over time, aligning the expense with the period in which the asset is used.

Why the Term Matters

Capitalization matters because it helps describe size, value, and cost treatment. Market capitalization provides a snapshot of a firm’s market value, while accounting capitalization affects how assets and expenses appear in financial records.

  • Market capitalization
  • Outstanding shares
  • Share price
  • Asset valuation
  • Accounting methods

FAQs

What does capitalization mean in the stock market?
Capitalization means the total market value of a company calculated by multiplying outstanding shares by the share price.

How is market capitalization calculated?
Market capitalization is calculated by multiplying the number of outstanding shares by the current share price.

What does capitalization mean in accounting?
Capitalization in accounting refers to adding a cost to an asset’s value and expensing it over the asset’s useful life.

Why are costs capitalized instead of expensed immediately?
Costs are capitalized so they can be deducted over time rather than at the moment they are incurred.

Does capitalization have more than one meaning?
Capitalization has different meanings depending on whether it is used in a market context or an accounting context.

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