Fixed Capital of Capital Requirements

The fixed capital of an industrial concern is invested in fixed assets like plant and machinery, land, buildings furniture, etc. These assets are not fixed in value; in fact, their value may record an increase of decrease in course of time.

They are fixed in the sense that without them, the business of the concern cannot be carried on. This means that the fixed capital is used for meeting the permanent or long-term needs of the concern. While making an assessment of the fixed capital requirements, a list of the fixed assets needed by the concern will have to be prepared, say, by promoter. Having compiled a list of the fixed assets which will be required, it is not difficult to estimate the amount of funds required for the purpose. The prices of land are generally known, or can be easily ascertained. A contractor can be relied upon to give a proper estimate of the cost of the building to b e erected. Those who supply machinery and plant will certainly give quotations for the plant and equipment to be installed. Similarly, the amount to be paid for patents, trademarks, goodwill, etc., will not be difficult to ascertain.

The total of all these items will give the amount to be invested in fixed assets. It goes without saying that such an amount must to be raised before the company goes into production. The amount of fixed capital requirements of a concern depends on: (a) nature of the business, and (b) size of the business unit. For instance, a public utility concern (say, an electricity supply company, water supply undertaking or, for that matter, a railway company) would require heavy investment in fixed assets and equipment. On the other hand, a trading concern represents the other extreme. It requires comparatively much less equipment of fixed nature. Its fixed capital requirements would, therefore, be relatively much less. The fixed nature. Its fixed capital requirements would, therefore, be relatively much less. The fixed capital needs of a manufacturing concern would vary with the scale of production, usually, the larger the scale, the heavier would be the investment in fixed assets.

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