The combination of long-term debt, preferred stock, and common stock. Generally speaking, it is the market value of equity plus the market value of debt, which combined represent the value of a firm. In other words, total capitalization is the present value of all the claims on the firm.

Total capitalization = PV (E) + PV (D)

For example, if a company has $12 million in retained earnings, $66 million in common stock, and $22 million in long-term debt, then:

Total capitalization= 12 m+ 66 m+ 22 m= 100 m

That means the company’s long-term financing is $100 million.