What is Fixed Capital ? Meaning, Definition & Examples
What is Fixed Capital?
Fixed capital is the capital that is used for buying fixed assets that are used for a longer period of time in the business. These assets are not meant for resale.
In simple words, fixed capital refers to capital invested for acquiring fixed assets. It stays in the business for a long period almost permanently.
Examples of fixed capital are –
Capital used for purchasing land and buildings, furniture, plants, machinery, etc. Such capital is required usually at the time of the establishment of a new company. However, existing companies may also need such capital for their expansion and development, replacement of equipment, etc.
Initial planning of fixed capital requirements is made by the company’s promoters. For this, they first prepare a list of fixed assets needed by the company, and the cost of these assets is estimated. They collect information regarding the price of land, cost of construction of buildings, cost of plants and machinery, etc.
The cost of different fixed assets is calculated and the resulting figure would be the total fixed capital requirement of a new firm. In recent years, estimating fixed capital requirements has assumed great importance particularly because of modern industrial processes which require increased use of heavy and automated machinery.
An entrepreneur obtains funds for the purchase of fixed assets from capital market. Funding can come from issue of shares, debentures, bonds, or obtaining even long-term loans.
