Difference Between Amortization and Capitalization

Amortization vs Capitalization

Amortization and capitalization represents two aspects of finance. Amortization can be called as a process of accounting for an increasing amount over a period of time. In simple words, Amortization can be defined as the deduction of capital expenses over a period of time. Capitalization is a company’s long-term debt commitment, in addition to equity on a balance sheet.

Amortization can also be called as process by which a loan can be paid through periodic payments. Amortization loans are quite different from other loans in the way they are structured. It is also a process by which a loan can be paid in regular installments over a period of time. Amortization is a process in which a portion of the payment goes towards the principal and another portion goes towards the interest of the loan.

Amortization usually measures the consumption of the value of intangible assets, like patent, capitalized cost and so on. For example, if a company has spent 30 million dollars on any equipment, and the patent had lasted for 15 years, then the amortization expense will be two million dollars per year.

Capitalization can also be called capital structure. Capitalization is the sum of a company’s stock, retained earnings and long-term debt. Companies rely on capitalization for developing projects and products, and also for fund expansion. The company makes the capital assessment through debt and equity. The investors will be able to make an assessment of the financial health of a company by examining its total capitalization.

Capitalization can also be referred to as the total value of a company, measured by its stock.

Summary:

1. Amortization can be defined as the deduction of capital expenses over a period of time. Capitalization is a company’s long-term debt commitment in addition to equity on a balance sheet.
2. Amortization is a process in which a portion of the payment goes towards the principal and another portion goes towards the interest of the loan.
3. Amortization usually measures the consumption of the value of intangible assets, like patent, capitalized cost and so on.
4. Capitalization is the sum of a company’s stock, retained earnings and long-term debt. Capitalization can also be referred to as the total value of a company, measured by its stock.
5. The investors will be able to make an assessment of the financial health of a company by examining its total capitalization.

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