when high dollar value items are capitalized expenses are effectively smoothed out over multiple periods this allows a company to not present large jumps in expense in any one period from an expensive purchase of property plant or equipment the company will initially show higher profits than it would have if the cost were expensed in full however this also means that it will have to pay more in taxes initially 
capitalizing costs inappropriately can lead investors to believe that a company s profit margins are higher than they are warning signs that a company may be capitalizing costs inappropriately include 