Explain Role or Importance of Fixed Capital
Following diagram briefly explicate the principal role or importance of fixed capital.
assets for the company.
Now let's hash out higher upwards points highlighting role or importance of fixed capital.
1. Establishment of company
Every society needs fixed upper-case missive of the alphabet to initiate its business activities. No society either big or pocket-sized tin dismiss live on established without making investments inward shape of a fixed capital.
Maximum total of fixed upper-case missive of the alphabet is required during the foundation phase of a company. At this inception level, fixed upper-case missive of the alphabet is mainly used to run into the preliminary expenses of a company.
Fixed Capital is needed to purchase fixed assets required for the shine performance of the society inward a long run.
The society needs fixed upper-case missive of the alphabet to brand a purchase of diverse fixed-assets similar province too building, works life too machinery, slice of furniture too fixtures, etc.
2. Promotion of company
Once a society is established, its advertisement takes place. The promoters of a society execute the promotional activities.
The promoters necessitate fixed upper-case missive of the alphabet to pay their advertisement expenses.
Generally, the promotional expenses comprehend toll incurred on the:
- Preparation of projection reports,
- Payment of preliminary (establishment) expenses,
- Legal too other professional person fees,
- Issuance of a company's prospectus to the investors.
3. Modernisation of company
Modernisation is an innovative approach used to lift the traditional (existing) performance of whatever organization or process.
Modernisation is necessary to lift efficiency too increment productivity of business. It shall live on implemented equally too when novel enquiry too evolution takes place.
To innovate modernisation, the society has to start novel machineries too technologies. It needs fixed upper-case missive of the alphabet to purchase modern machines too implement latest technologies.
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4. Replacement of obsolete assets
In a course of study of time, society has to supersede one-time too outdated assets such equally works life too machinery, slice of furniture too fixtures, etc.
Such replacement of fixed assets is necessary to increment the efficiency too productivity of the company.
The society needs sufficient fixed upper-case missive of the alphabet to supersede the old, outdated or obsolete assets.
5. Expansion too diversification
The pregnant of expansion too diversification of a company:
- Expansion way growth of describe organization activities inward the same sector of an economy.
- Diversification implies growth of describe organization activities inward to a greater extent than than 1 sector of economy.
Generally, near companies undergo expansion too diversification.
To expand too diversify its describe organization activities, a society needs finance inward the shape of fixed capital.
6. Automation of company
Automation is a procedure of reducing dependency on manual labour and/or minimizing regular human interventions past times installing self-operating (programmed or automatic) machines.
If a labour-intensive society decides to automate its routine production activities, thence it must kickoff procure self-operating machines. Company needs a lot of fixed upper-case missive of the alphabet to brand a purchase too install automatic-machines.
7. Widen the range of activities
Generally, the principal focus of near companies is on their manufacturing too trading activities. Companies too necessitate to pay proper attending on their distribution network to increment the sale of their goods too services.
So, if whatever such society widens its range of activities, thence it volition necessitate to a greater extent than fixed capital.
8. To increment upper-case missive of the alphabet requirements
Company requires fixed upper-case missive of the alphabet to increment its upper-case missive of the alphabet requirements to sustain too facial expression upwards regular contest inward a long run.
The primary too major sources of fixed capital requirements of a society tin dismiss live on satisfied from:
- Public – past times issuing shares, and
- Banks – past times applying for the loans.