, to recognize expenses
on long-term liabilities
over a long period of time. This allows a company to spread out its expenses so they do not appear to reduce profits
at any particular time. For example, a company may have a $1 million profit and a $1 million loan
to acquire machinery for its factory. If it does not capitalize the loan, its balance sheet will show no profit for that year. Capitalizing the loan allows the company to recognize the liability over a certain period, usually the usable life
of the machinery.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
To calculate the current value of a future stream of earnings or cash flows. For example, to calculate the current price at which a bond should sell, a financial analyst must capitalize the interest payments and principal repayment that will be made to the investor.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
(1) In finance:(a) To add an expenditure to the basis of property.(b) To provide funding to an enterprise. (c) To book something as an asset and depreciate it rather than writing off the money spent as an expense.(When one “cooks the books”for a business,extensive repairs might be capitalized as improvements in order to make the enterprise appear more valuable than it is in reality.This approach runs counter to the normal taxpayer desire to treat all repairs as expenses in order to gain maximum tax deductions in the current year.) (2) In appraisal,to estimate the present value of an income stream from a business or property.
The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
To treat the cost of additions and improvements to property as a capital improvement or expenditure.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary