Capitalization Question:

In this theory the value of the company is decided by adding certain factors such as:-

(i) Cost of fixed assets i.e. Machinery, mechanical items

(ii) Working capital i.e. the capital which is required for continuous operation of the company

(iii) Cost of establishment of business promotion i.e. Expenses in doing the advertisements

These factors allow the promotion team to know the amount of capital which has to be raised to fulfill the promotion job. The true income of the company is been found out by its earning not by its investment in other states. For example if some assets becomes out of date and some idle then the earnings will fall but that fall of capital won't affect the investment made by the company in other company's business.