Introduction to Corporate Finance — Secretarial Practice STD 12 Commerce / Arts — Question

• The nature of business certainly plays a role in determining fixed capital requirements. They need to invest a huge amount of money in fixed assets.
• e.g. Rail, road, and other public utility services have large fixed investments.
• Their working capital requirements are nominal because they supply services and not the product.
• They deal in cash sales only.

(ii) Size of business:
The size of a business also affects fixed capital needs. A general rule applies that the bigger the business, the higher the need for fixed capital. The size of the firm, either in terms of its assets or sales, affects the need for fixed capital.

(iii) Scope of business:
Some business firms that manufacture the entire range of their production would require a huge investment in fixed capital. However, those companies that are labour intensive and who do not use the latest technology may require less fixed capital and vice versa.

(iv) Extent of lease or rent:
Companies who take their assets on a lease basis or on a rental basis will require less amount of funds for fixed assets. On the other side, firms that purchase assets will naturally require more fixed capital in the initial stages.