What is fixed capital? Enumerate any two of the factors determining the fixed capital requirements of an enterprise.
The .capital invested in fixed assets like land and buildings, plant and macltinery, furniture and fixtures, etc, is known as fixed capital. Fixed capital is that portion of the total capital which is represented by fixed assets. It is known as ‘block capital’ because it is blocked up in fixed assets for the life of the company.
Fixed capital represents the permanent or long-term capital of an enterprise. Therefore, it is raised through long-term sources, like shares, debentures, long-term loans and retained earnings.
Factors determining fixed capital requirements are:
(i) Nature of business A manufacturing . enterprise requires a large amount of fixed
capital as compared to a trading or commercial concern.
(ii) Scale of operations A large scale enterprise generally requires greater fixed capital than a small scale enterprise, e.g. a large scale steel enterprise like Tata Iron and Steel Company requires huge investment in fixed assets in comparison with a toy manufacturing unit.