Fixed Capital

FIXED CAPITAL            

Factors affecting the Requirement of Fixed Capital:

1. Collaboration Level:

If business organizations share each other’s facilities such collaboration reduces the level of investment in fixed assets. For example, a bank may use another’s ATM, or telecom companies share a common TOWER.

2. Upgrading Of Technique:
   • If assets become obsolete sooner. For example, computers become obsolete faster and are replaced much sooner. Require higher fixed capital.
   • Other business like steel and textile has stable assets and can be used for a longer period.
3. Prospectus Of Growth:
   • An organization generally aiming for higher growth requires higher investment in fixed assets in order to meet the expected order quickly.
4. Scale Of Business:
   • A larger organization operating at a higher scale needs a bigger plant, more space, etc. and therefore, requires higher investment in fixed assets when compared with a small organization.
5. Technology Choice:
   • A capital-intensive organization requires higher investment in plants and machinery as it relies less on manual labor. Labor-intensive organizations on the other hand require less investment in fixed assets.
6. Alternatives of Finance:
   • Availability of leasing facilities may reduce the funds required to be invested in fixed assets, thereby reducing the fixed capital requirements.
7. Nature of Business:
   • A trading concern needs lower investment in fixed assets compared with a manufacturing organization; since it does not require purchasing plant and machinery etc.
8. Diversification:
   • A firm chooses to enter into other sectors/businesses With diversification, fixed capital requirements increase e.g., a textile company is diversifying

Factors affecting fixed assets requirements are: