Capitalization (Company) - Explained
What is Capitalization?
Written by Jason Gordon
Updated at April 16th, 2022
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What is Capitalization?
Capitalization refers to the value of a company; it is the total amount of a company's shares on the market or the total amount of assets that a company owns. Capitalization can also mean how interest is paid on loans.
Back to:BUSINESS & PERSONAL FINANCE
How Does Capitalization Work?
Capitalization is categorized into two depending on whether interest on loan is added to the initial capital or not. Granted, there are different formulas used to calculate capitalization. You need to understand these terms:
- Co- initial
- Cn capital in year n
- i Interest
- n Number of years
In simple capitalization, the interest is dependent on initial capital: Cn = Co = (1 + n (i)) In compound capitalization, interest earned is added each year to capital Cn = Co (1 + i)