Capitalize?

The term “capitalize” means registering the quantity of an entity in a balance sheet account against the income statement. Capitalizing can be different in different companies depending on their turnovers. But a big company would not do that. Moreover, in case of leased equipment, if it is a disguised purchase and not a rental agreement, then the lease should be capitalized. A process whereby anticipated future income is converted to one lump sum capital value. A Capitalization Rate is divided into the expected periodic income to derive a capital value for the expected income

There are basic differences between capitalization and depreciation.

Capitalization refers to adding the sum to the balance sheet. Suppose, a house is constructed after taking loans, then some interests of it will be added to its cost, which in total with the cost will be shown as an asset on your balance sheet.

Whereas, depreciation is the reduced amount registered on the balance sheet. It refers to the systematic allocation of the price of an asset from the balance sheet and reporting it as depreciation expense on the income statement. In short, capitalization refers to the addition and depreciation refers to the subtraction of an amount from the balance sheet.

Though not distinctly different, following types of capitalization are predominant.

• Mega cap: it includes the companies, whose market capital is over $200 billion. The most publicly traded companies like the Exxon are the leaders, which is not applicable to the majority of companies.

• Big/large cap: their market capital is between $10 billion and $200 billion. The well noted companies like the Microsoft, Wal-Mart, General Electric and IBM fall into this category. The large capital stocks are considered to be steady and safe. These stocks are also known as blue chips.

• Mid cap: the companies under this category are considered to be more unstable than the mega and large capital companies. A considerable part of this capital is characterized by the Growth Stocks. Some of the companies under this category are on the verge of becoming the industrial leaders.

• Small cap: the comparatively new and young companies having the capital between $300 million to $2 billion. They offer the possibility of greater capital increase but leaving the risk factor.

• Micro cap: The companies primarily consist of penny stocks ranging between $50 million to $300 million. They have equal upward and downward potential and thus are risk prone. You should do a lot of research before venturing into this position.

• Nano cap: capitals below $50 million are the indicator of this category. This is the riskiest of the categories and offer for very meager gain. The stocks normally trade on the pink sheets or OTCBB.

This categorization does vary with the variation in the actual market.