What do you mean by fixed capital?

The term ‘fixed capital’ is often considered to be equivalent to fixed assets, which represents the employment of capital in permanent assets and other non-current assets. The fixed assets are assets of enduring nature that the business does not aim to dispose of, or that could not be discarded of without interfering the business actions. Thus a company holds the fixed assets with the intention of making profits directly or indirectly and not for the purpose of sale in the ordinary course of business. The fixed assets include land, building, plant, machinery, furniture, fixtures, vehicles etc.

Making investment in the fixed capital is the primary step for setting up a business enterprise. The investment in non-current assets is termed as ‘fixed capital.’ Such assets include items in which capital is locked for a long time. Although they do not show the investment in physical productive facilities, yet they are essential for the success of the business and regarded as vital part of the capital arrangement.

There are certain enterprises, which cannot think of running in the absence of adequate amount of fixed capital. It is not only needed for funding the acquirement of fixed assets, but also for initial period of its functioning in order to establish itself. It is also required for making meliorations and amplifying the existing amount of business enterprise. Thus, it appears that right quantity of fixed capital is a necessary requirement for the success of an industrial concern.

Posted in

• business finance
• business financing
• capital finance
• fixed capital

• Read more