Question
Fixed Capital and Working Capital
| Points | Fixed Capital | Working Capital |
| 1. Meaning | Fixed capital refers to any kind of physical asset, a portion of total capital that is invested in fixed assets. | Working capital refers to the sum of current assets or gross working capital. |
| 2. Nature | It stays in the business almost permanently. | Working capital is circulatory capital. It keeps changing. |
| 3. Purpose | It is invested in fixed assets such as land, building, equipment, etc. | Working capital is invested in short-term assets such as cash, account receivable, inventory, etc. |
| 4. Sources | Fixed capital funding can come from selling shares, debentures, bonds, long-term loans, etc. | Working capital can be funded with short-term loans, deposits, trade credit, etc. |
| 5. Objectives of investors | Investors invest money in fixed capital hoping to make a future profit. | Investors invest money in working capital for getting immediate returns. |
| 6. Risk | Investment in fixed capital implies more risk. | Investment in working capital is less risky. Eg. Land, building, plant and machinery |
| 7. Decisions | Decisions relating to fixed capital investment are generally made by top-level management. Eg. Cash, bills receivable, inventories, cash at the bank | Decisions relating to working capital needs are generally made by middle-level or lower-level management. |
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