What do you mean by the terms “capitalization” and “capital structure”?

Capital Structure:  

Framework of different types of financing employed by a firm to acquire resources necessary for its operations and growth. Commonly, it comprises of stockholders' investments (equity capital) and long-term loans (loan capital), but, unlike financial structure, does not include short-term loans (such as overdraft) and liabilities (such as trade credit). Also called capitalization structure.

Capitalization means and defined as:

1.Accounting: Recording of a cost as a fixed asset (written off as depreciation over several accounting periods) instead of an expense (charged off against earnings in one accounting period).

2.Corporate: Conversion of the retained earnings of a firm into capital through a new issue of stock.

3.Finance: Structure and amount of long-term equity and debt capitals of a firm expressed as percentage of the total (equity and debt) capital.

4.Leasing: Conversion of an operating lease into a capital lease by classifying the leased asset as a purchased asset, and showing the lease obligations as loan on the books of the lessee firm.

Capitalization

Capitalization refers to the amount and types of long-term financing used by a firm. A firm with capitalization including little or no long-term debt is considered to be financed very conservatively. Capitalization in simple terms refers to Long-term debt plus preferred stock plus net worth.

Capital Structure

The Capital Structure of a firm is its mix of different securities issued by that firm. It looks at the combination of short and long-term debt securities, preferred stocks and equity that will be used to finance a firm’s assets. The optimal capital structure should strike a balance between risk and returns and thus maximize the price of a firm’s shares.

• Capitalization

The word capitalize means to record the amount of an item in a balance sheet account as opposed to the income statement. (The accounts in the general ledger and in the chart of accounts consist of two types of accounts: balance sheet accounts and income statement accounts.)

• capital structure

A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. there are three structures followed by the companies

1.Maturity matching policy - Current liabilities only can finance by the amount of temporary current assets.

low risk

2. Aggressive policy - Current liabilities can finance by the amount of temporary current assets and permanent current assets.

too risky

3. Conservative approach - Current liabilities only can finance by a part of amount of the temporary current assets. it means temporary current assets> current liabilities.

the more safest mode to financing.

1. In accounting, it is where costs to acquire an asset are included in the price of the asset.

2. The sum of a corporation's stock, long-term debt and retained earnings. Also known as "invested capital".

3. A company's outstanding shares multiplied by its share price, better known as "market capitalization".

A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.

AGREE WITH MR VENKIATARMAN & MR IHAB ANSWERS 

Agreed by Mr. Venti....

Capitalization is a tool used to fix whether an expenditure is to be booked under P& L or in Position Statement.  No doubt, investment in machinery is booked under Fixed Asset, but how to treat the carriage or customs paid on it? It must be capitalized and added to the cost of machinery. It is an example of capitalization.

Capital Structure  is a mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure show how a firm finances its overall operations by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.

Capital structure is the mix of financing the company through short term loans, long term loans, stocks even common or preferred. sometimes this capital structure is referred to as capitalization.

Capital Structure accounts for all elements that make up the capital of the company. These may be the equities, the Reserves and the long term loans the company has entailed for its growth purposes. Capitalization on the other hand refers to deferring the charge of a CAPEX over a number of years due to its nature as a Non Current or Intangible Assets whose rewards would be gained over a number of periods. Eg. Capitalizing Leased assets, Intangible Assets such as Development Costs

Capitalization represent the long term fund which use to finance company activities including equity and debt.

Capital Structure is the mix between equity and debit.

AGREED WITH U MR DIVYESH