capitalize

cap·i·tal·ize   (kāp'ĭ-tl-īz')    v.   cap·i·tal·ized, cap·i·tal·iz·ing, cap·i·tal·iz·es v.   tr. To use as or convert into capital. To supply with capital or investment funds: capitalize a new business. To authorize the issue of a certain amount of capital stock of: capitalize a corporation. To convert (debt) into capital stock or shares. To calculate the current value of (a future stream of earnings or cash flows). To include (expenditures) in business accounts as assets instead of expenses. To write or print in capital letters. To begin a word with a capital letter. v.   intr. To turn something to one's advantage; benefit: capitalize on an opponent's error. See Synonyms at benefit. cap'i·tal·iz'a·ble adj.

Capitalize

An accounting method used to delay the recognition of expenses by recording the expense as a long-term asset.

Investopedia Commentary

In general, capitalizing expenses is beneficial as companies acquiring new assets with a long-term lifespan can spread out the cost over a specified period of time. Companies simply take expenses that they incur today and deduct them over the long term without an immediate negative affect against revenues.

However, if a company capitalizes regular operating expenses, it is doing so inappropriately, most likely to artificially boost its operating cash flow and look like a more profitable company. Because a company can't hide it's expenses forever, such a practice will fail in the long run.

It is important not to confuse capitalize with capitalization.

Related Links

Cooking The Books 101
Advanced Financial Statement Analysis
Understanding Economic Value Added

See also: Aggressive Accounting, Market Capitalization, Non-Operating Cash Flows, Operating Cash Flow - OCF, Operating Expense

capitalize

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.

Main Entry: cap·i·tal·ize
Pronunciation: 'ka-p&t-^&l-"Iz
Function: transitive verb
Inflected Forms: -ized; -iz·ing
1 a : to convert into capital <capitalize the company's earnings> b : to treat as a capital expenditure rather than an ordinary and necessary expense capitalized>
2 a : to compute the present value of (an income extended over a period of time) —compare AMORTIZE b : to convert (a periodic payment) into an equivalent capital sum <capitalized annuities>
3 : to supply capital for capitalized the business with her own savings>