What Is Capitalization Of Profits?

Capitalization of profits is the use of a corporation's retained earnings (RE) to pay a bonus to shareholders in the form of 澳洲幸运5官方开奖结果体彩网:dividends or additional shares. It is a reward to shareholders, distributed in proportion to the 𝓡number of shares each owns.

Understanding Capitalization Of Profits

Capital means assets of value. So, capitalization of profits implies that a company is transforming its 澳洲幸运5官方开奖结果体彩网:cash reserves into assets oꦬf valu🌄e, and transferring those assets to shareholders.

A company's cash reserves are its profits. This is the money it has received as payment for its products or services, above and beyond what it has spent to deliver them. There are a few ways that a company can use its profits. It can plow the money back into the business, using it to improve or expand its product lines, or it can keep it on the 澳洲幸运5官方开奖结果体彩网:balance sheet for some future, yet-unidentified opportunity.

Alternatively, the company can return some or all of that profit to its 澳洲幸运5官方开奖结果体彩网:shareholders, in the form of cash dividends or new shares. The capitalization of profits by issuing additional shares has no impact on a corporation's 澳洲幸运5官方开奖结果体彩网:book value. It merely tr꧋ansfers funds from RE, or profits, to assets for shareholders. In that sense, the company is using money but not losing it.

A corporation may be limited by its own articles from issuing bonus shares above a certain amount. In such cases, the corporate officers simply change the articles to raise the limi﷽t.

Other Uses of Capitalization

The word 澳洲幸运5官方开奖结果体彩网:capitalization has a bewildering number of uses in the financial world. In general, it means turning something into money or providing money. For instance, investors provide a company with capitalization by buying shares oജf its stock.

A few of the more comཧmon usages of the term capitalization include:

• 澳洲幸运5官方开奖结果体彩网:Market capitalization, or market cap, is a measure of the actual value of a company. It is calculated by multiplying the current share price by the number of 澳洲幸运5官方开奖结果体彩网:shares outstanding.
• Large capitalization, medium capitalization, or small capitalization, more commonly called 澳洲幸运5官方开奖结果体彩网:large cap, medium cap, and 澳洲幸运5官方开奖结果体彩网:small cap, is a way to lump companies into categories based on their size or market cap.
• Thin capitalization means that a company has an excessive amount of debt in comparison to its overall 澳洲幸运5官方开奖结果体彩网:shareholder equity (SE).