What are Features of Fixed Capital?
The x of import features of fixed capital are depicted inward the next image.
The psyche characteristics or features of fixed uppercase are listed equally follows:
- Purchase of fixed assets.
- Promotion as well as expansion of business.
- Low liquidity.
- Permanent inward nature.
- Primary sources.
- Amount of fixed capital.
- Long-term needs of business.
- Source of wealth as well as risk.
- Source of profit.
- Appreciation as well as depreciation.
- Miscellaneous features.
Now let's hash out each characteristic of fixed uppercase 1 past times one.
1. Purchase of fixed assets
Fixed uppercase is capital invested inward fixed assets. In other words, it is uppercase used for purchasing fixed assets.
The fixed assets tin live grouped nether 2 psyche categories, viz.,
- Tangible fixed assets includes land, building, plant, machinery, etc.
- Intangible fixed assets includes patents, copyrights, goodwill, then on.
2. Promotion as well as expansion of business
Fixed uppercase is required for promoting work organisation as well as its ancillary (supplementary) activities.
Along amongst promotion, fixed uppercase equally good helps inward the expansion, modernization as well as diversification of business.
3. Low liquidity
In general, the Definition of liquidity tin live stated equally follows:
“Anything which is easily saleable inward the market as well as gets an expected value (price) is said to live liquidable. That is, it has a liquidity.”
Low liquidity agency something, which is non easily realizable (i.e. saleable).
Fixed uppercase is used to instruct (purchase) fixed assets. These assets direct maintain a depression liquidity because they are non easily saleable.
4. Permanent inward nature
Fixed uppercase has a long-lasting existence. It is permanent inward nature. It cannot live withdrawn from the business. However, it tin live withdrawn exclusively when the work organisation closes or shuts downwards (i.e. liquidates).
5. Primary sources
Primary sources of fixed uppercase are shares, debentures as well as long-term loans.
In the accumulated i.e. full fixed capital,
- The owners funds come upwardly from shares.
- The fixed borrowed funds come upwardly from debentures.
- The long-term loans are obtained from fiscal Institutions.
Of the higher upwardly 3 sources, shares are the psyche root of fixed capital.
6. Amount of fixed capital
The total of fixed uppercase depends on the next factors:
- Nature of business.
- Size of companionship or organization.
- Location of business.
- Business-related infrastructure facilities.
- Methods of production.
7. Long-term needs
Fixed uppercase is used to run across the long-term needs of the work organisation unopen to of which are listed below.
- Amalgamation.
- Merger.
- Foreign collaboration.
- Sharing or leasing of technologies.
8. Source of wealth as well as risk
Fixed uppercase is a root of wealth. However, it is equally good a root of risk. This is because it causes:
- Depreciation of fixed assets.
- Outflow of involvement cost.
- Normal repairs as well as maintenances.
- Contingencies as well as uncertainties attached to the business.
9. Source of profit
Profit is the divergence betwixt sale cost as well as cost of purchase.
Fixed assets are equally good sources of profit. These assets assist inward earning earnings through the sale of products.
However, fixed assets cannot earn a earnings past times themselves. They accept assist of next factors of production to earn the profit:
- Raw-materials.
- Labour.
- Infrastructure facilities roofing provide of electricity, fuel, water, etc.
10. Appreciation as well as depreciation
The important of 2 terms viz., appreciation as well as depreciation are reverse to each other. Their private important is stated below.
- Appreciation agency an growth inward the value of an property existence used.
- Depreciation indicates a decrease inward the value of an property existence used.
Fixed assets tin undergo either an appreciation or depreciation over a menstruum of time. The value (price) of unopen to fixed assets similar the world appreciate afterwards unopen to menstruum of time. However, the value of other fixed assets such equally building, machinery, furniture, etc., depreciate afterwards unopen to menstruum of time.
11. Miscellaneous features
Miscellaneous features of fixed uppercase are equally follows:
- Fixed uppercase improves fiscal analysis.
- It provides a long-term work organisation stability.
- It helps inward getting term loans.
- It equally good improves equity uppercase ratio.
