What is compounding?

The definition of capitalization refers to the evolution of a capital over a period of time. When an investment is made or a loan is requested, the intention is to obtain or give an amount of interest per year as payment for having that capital during the set time.

Therefore it can be said that the concept of capitalization is used to indicate the profitability of a situation for their own benefit.

Types of capitalization

There are two types of capitalization, depending on whether or not the interest earned is added to the initial capital. There are different formulas to calculate capitalization, such as the simple capitalization formula and the compound capitalization formula. To do this, you must understand the following terms:

Co: initial capital

Cn: capital in year 'n'

i: Type of interest in the operation

n: Number of years

  • Simple capitalization: the interests depend only on the initial capital.

Cn = Co = [1 + (i)]

  • Compound capitalization: the interests obtained are added year by year to the capital.

Cn = Co (1 + i) elevated an

In addition to the economic sector, the concept of capitalization is also used to refer to an important financial contribution made by a business group or person in a company. In addition, it can also be considered as the transformation of financial resources that are already available in monetary capital.

Capital, along with land and labor, is one of the great productive factors par excellence and deals above all with the amount of money that can be borrowed or invested.

Simple interest calculator

What is market capitalization?

In the stock market, a company's market capitalization is defined as the economic dimension that it has in the market in which it participates. This requires consensus on the valuation of the company. In technical terms, the capitalization is equal to the price of each acción multiplied by the number of circulating shares of a company, which has an open capital in a specific period of time. This heritage will serve to show the ability to buy and sell in the Stock exchange.

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