What are the main factors affecting the requirement of fixed capital?
Solution:
The term "fixed capital" refers to investments that are made for a longer period of time in fixed assets. Financing for fixed capital often comes from forms of financing with a longer time horizon, such as equity shares, preference shares, debentures, long term loans, and so on.
Factors affecting fixed capital:
The needs for fixed capital are influenced by the nature of the business, which in turn is influenced by the nature of the company. For instance, a trade concern requires a far lesser investment in fixed assets in comparison to a manufacturing organisation. This is because a trading concern does not need to invest in plant and equipment, among other things.
Scale of Operations: A larger company that operates at a greater size needs larger plant, more space, etc., and as a result, requires a higher investment in fixed assets as compared to a smaller organisation. This is due to the fact that the larger organisation operates at a higher scale.
Technique of Choice: Some businesses rely heavily on capital expenditures, while others rely heavily on the efforts of their employees. Because it employs fewer people in manual labour roles, a business that is capital-intensive need a greater financial investment in plant and equipment. Increased levels of required fixed capital would be necessary for enterprises in this category.
Technology Upgrades: Certain types of businesses see their assets become outdated far faster than others. As a direct result of this, their replacements are overdue sooner. Consequently, a greater investment in fixed assets could be necessary in circumstances like these. Computers, for instance, are more likely to become outdated and are thus replaced considerably sooner than furniture is.
The potential for increased expansion of an organisation often necessitates an increase in the level of investment made in fixed assets. Even when such growth is predicted, a company could decide to expand its capacity in order to satisfy the anticipated increased demand for their products or services more quickly.
A corporation may decide to diversify its operations for a number of different reasons. As a result of diversification, the amount of fixed capital needs that must be met increases. For instance, a textile company is diversifying its activities by opening a cement producing facility.
Alternatives to Buying Outright A well-developed financial market may have the ability to offer leasing facilities as an alternative to buying outright. When a company leases an asset, it continues to make payments on the item while still making use of it. It saves significant quantities of money by doing so, which would have been necessary to buy it.
The term "fixed capital" refers to investments that are made for a longer period of time in fixed assets. Financing for fixed capital often comes from forms of financing with a longer time horizon, such as equity shares, preference shares, debentures, long term loans, and so on.
Factors affecting fixed capital:
The needs for fixed capital are influenced by the nature of the business, which in turn is influenced by the nature of the company. For instance, a trade concern requires a far lesser investment in fixed assets in comparison to a manufacturing organisation. This is because a trading concern does not need to invest in plant and equipment, among other things.
Scale of Operations: A larger company that operates at a greater size needs larger plant, more space, etc., and as a result, requires a higher investment in fixed assets as compared to a smaller organisation. This is due to the fact that the larger organisation operates at a higher scale.
Technique of Choice: Some businesses rely heavily on capital expenditures, while others rely heavily on the efforts of their employees. Because it employs fewer people in manual labour roles, a business that is capital-intensive need a greater financial investment in plant and equipment. Increased levels of required fixed capital would be necessary for enterprises in this category.
Technology Upgrades: Certain types of businesses see their assets become outdated far faster than others. As a direct result of this, their replacements are overdue sooner. Consequently, a greater investment in fixed assets could be necessary in circumstances like these. Computers, for instance, are more likely to become outdated and are thus replaced considerably sooner than furniture is.
The potential for increased expansion of an organisation often necessitates an increase in the level of investment made in fixed assets. Even when such growth is predicted, a company could decide to expand its capacity in order to satisfy the anticipated increased demand for their products or services more quickly.
A corporation may decide to diversify its operations for a number of different reasons. As a result of diversification, the amount of fixed capital needs that must be met increases. For instance, a textile company is diversifying its activities by opening a cement producing facility.
Alternatives to Buying Outright A well-developed financial market may have the ability to offer leasing facilities as an alternative to buying outright. When a company leases an asset, it continues to make payments on the item while still making use of it. It saves significant quantities of money by doing so, which would have been necessary to buy it.