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Capitalization Of Profits

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Definition of 'Capitalization Of Profits'

Converting a company's retained earnings, which represent the profits held in the business over time, to capital. The capitalization of profits process involves issuing a stock dividend, or bonus shares, to existing shareholders. This allocation is done on the basis of their existing share holdings, similar to a rights issue.

Investopedia Says

Investopedia explains 'Capitalization Of Profits'

Capitalization of profits has no impact on shareholders' equity or book value, since it merely transfers funds from retained earnings to paid-up capital. A company may choose to capitalize profits for a number of reasons, such as providing an immediate reward to shareholders or conserving its cash resources.

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