Legal Definitions - capitalize

Definition: To convert earnings into capital, treat a cost as a capital expenditure, determine the present value of long-term income, or supply capital for a business.

• When a company earns profits, it can choose to capitalize those earnings by reinvesting them into the business instead of distributing them as dividends to shareholders.
• If a business purchases a new building, it may choose to capitalize the cost of the building by treating it as a long-term asset rather than an expense that is deducted from revenue.
• An investor may capitalize the future income from a rental property by determining its present value and using that value to make investment decisions.
• A venture capitalist may choose to capitalize a startup by providing the necessary funding to get the business off the ground.

These examples illustrate the different ways in which earnings, costs, and income can be capitalized to benefit a business or investor. By converting earnings into capital, treating costs as assets, determining the present value of income, or supplying capital for a business, individuals and companies can make strategic decisions that help them achieve their financial goals.