capitalization

Examples of capitalization in the following topics:

• Defining Capital

  • In economics, capital (also referred to as capital goods, real capital, or capital assets) references non-financial assets used in the production of goods and services.
  • It is possible for capital goods to be maintained or regenerated depending on the type of capital.
  • Physical Capital: capital that must be produced by human labor before it can become a factor of production (also referred to as manufactured capital).
  • Interest allows capital to be obtained, while profit is the accumulation of the capital.
  • Social Capital is capital that is captured as goodwill or brand value.

• The Marginal Cost of Capital

  • The marginal cost of capital is the cost needed to raise the last dollar of capital, and usually this amount increases with total capital.
  • The marginal cost of capital is calculated as being the cost of the last dollar of capital raised.
  • Generally we see that as more capital is raised, the marginal cost of capital rises .
  • The Marginal Cost of Capital is the cost of the last dollar of capital raised.
  • Describe how the cost of capital influences a company's capital budget

• Capital and Technology

  • Firms add capital to the point where the value of marginal product of capital is equal to the rental rate of capital.
  • Capital is a factor of production, along with labor and land.
  • It can be used to derive the marginal product for capital, which is the increase in the amount of output from an additional unit of capital.
  • The value of marginal product (VMP) of capital is the marginal product of capital multiplied by price.
  • Firms will increase the quantity of capital hired to the point where the value of marginal product of capital is equal to the rental rate of capital.

• Decision Criteria

  • The main considerations of working capital management decisions are (1) cash flow/ liquidity and (2) profitability/return on capital.
  • Working capital is the amount of capital which is readily available to an organization.
  • In addition to the time horizon, working capital decisions differ from capital investment decisions in terms of discounting and profitability considerations; they are also "reversible" to some extent.
  • Firm value is enhanced when, and if, the return on capital, which results from working-capital management, exceeds the cost of capital, which results from capital investment decisions as above.
  • Cash conversion cycle is a main criteria for working capital management.

• Cost of capital

  • The cost of capital is the rate companies must pay to finance a project.
  • The cost of capital refers to the cost of the money used to pay for the capital.
  • The cost of capital is used to evaluate a company's new projects.
  • In order for an investment to be worthwhile, the expected return on capital has to be higher than the cost of capital.
  • One way of combining the cost of debt and equity to generate a single cost of capital number is through the weighted-average cost of capital (WACC).

• The Capital Account

  • The capital account acts as a sort of miscellaneous account, measuring non-produced and non-financial assets, as well as capital transfers.
  • There are two common definitions of the capital account in economics.
  • Instead, the capital account acts as a sort of miscellaneous account, measuring non-produced and non-financial assets, as well as capital transfers.
  • The capital account can be split into two categories: non-produced and non-financial assets, and capital transfers.
  • Thus, the balance of the capital account is calculated as the sum of the surpluses or deficits of net non-produced, non-financial assets, and net capital transfers.

• Cost of Capital Considerations

  • Cost of capital is important in deciding how a company will structure its capital so to receive the highest possible return on investment.
  • One of the major considerations that overseers of firms must take into account when planning out capital structure is the cost of capital.
  • For an investment to be worthwhile, the expected return on capital must be greater than the cost of capital.
  • The weighted average cost of capital multiplies the cost of each security by the percentage of total capital taken up by the particular security, and then adds up the results from each security involved in the total capital of the company.
  • Describe the influence of a company's cost of capital on its capital structure and investment decisions

• Optimal Capital Structure Considerations

  • The optimal capital structure is the mix of debt and equity that maximizes a firm's return on capital, thereby maximizing its value.
  • One of the major considerations that overseers of firms must take into account when planning out capital structure is the cost of capital.
  • For an investment to be worthwhile, the expected return on capital must be greater than the cost of capital.
  • The weighted average cost of capital multiplies the cost of each security by the percentage of total capital taken up by the particular security, and then adds up the results from each security involved in the total capital of the company.
  • Explain the influence of a company's cost of capital on its capital structure and therefore its value

• Working Capital Management Analysis

  • Along with fixed assets, such as property, plant, and equipment, working capital is considered a part of operating capital.
  • If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.
  • Decisions relating to working capital and short term financing are referred to as working capital management.
  • Profitability can be evaluated by looking at return on capital (ROC).
  • Identify working capital and discuss how a company would use it

• Changing Worker Productivity

  • In economics and long-run growth, worker productivity is influenced directly by fixed capital, human capital, physical capital, and technology.
  • In economics and long-run growth, worker productivity is influenced directly by fixed capital.
  • Human capital and increased worker productivity are critical because they are different from the tangible monetary capital or revenue.
  • Human capital grows cumulatively over a long period of time.
  • Examine the role of human capital in production and economic growth