Factors Influencing or Affecting Fixed Capital Requirement
Following diagram highlights the of import factors influencing or affecting fixed capital requirement of a business. Click on picture for a zoomed preview.
The factors determining, affecting or influencing fixed upper-case missive of the alphabet requirements of a describe of piece of job concern are briefly given inwards the next nine points:
- Nature of describe of piece of job concern is the virtually crucial ingredient of all that significantly affects its fixed upper-case missive of the alphabet requirement.
- Size of describe of piece of job concern has a take away human relationship amongst its fixed upper-case missive of the alphabet need.
- The availability of fixed upper-case missive of the alphabet impacts the scale of operation.
- Modern technologies demand to a greater extent than fixed upper-case missive of the alphabet than traditional ones.
- Manufacturing of complex products demand to a greater extent than fixed upper-case missive of the alphabet than what total is required for making uncomplicated products.
- The compass of activities determines fixed upper-case missive of the alphabet needs of a business.
- The method of acquiring assets for describe of piece of job concern purpose influence it.
- The allotment of subsidy yesteryear authorities besides has an influence on it.
- Along amongst higher upwards 8 top dog factors, other infinitesimal considerations similar the lifetime of assets, annual maintenance costs (AMC), sustainability of sensitive projects, stages inwards evolution of a business, etc., besides influence the fixed upper-case missive of the alphabet requirements to to a greater extent than or less extend.
Now let's focus individually on above-mentioned points highlighting factors affecting the requirement of fixed capital.
1. Nature of business
The total of fixed upper-case missive of the alphabet required yesteryear a describe of piece of job concern depends on its nature, sort or type of activities it conducts.
Generally, manufacturing companies, carry companies in addition to world utilities require to a greater extent than contributions of fixed upper-case missive of the alphabet to initiate their describe of piece of job concern activities.
Examples of organizations that demand to a greater extent than fixed upper-case missive of the alphabet to initiate (start) their describe of piece of job concern activities are:
- Companies involved inwards manufacturing automobiles, textiles, electronic equipment, etc.
- Companies mainly engaged inwards processing, refining in addition to mining activities.
- Companies engaged inwards providing carry facilities via roadways, railways, waterways, in addition to airways.
- Public-utilities that furnish basic amenities similar H2O in addition to electricity.
2. Size of business
The size of describe of piece of job concern tin flame hold out either a large, medium or small.
The 5 of import parameters that are commonly considered piece evaluating the size of describe of piece of job concern are:
- The turnover (sales) of a business.
- The total release of employees employed inwards a business.
- Capital invested inwards or contributed to the business.
- Comparing the earnings made yesteryear a describe of piece of job concern unit of measurement amongst its active competitors.
- Comparing the market part of a business.
The size of a describe of piece of job concern is take away proportional to its fixed upper-case missive of the alphabet requirement. That is, a large-sized describe of piece of job concern entity ever needs to a greater extent than fixed upper-case missive of the alphabet to carry on its describe of piece of job concern activities than a medium in addition to small-sized describe of piece of job concern unit.
3. Scale of operation
The term ‘scale of operation’ commonly signifies the book inwards which a production occurs followed yesteryear its successful sale inwards the market.
The scale of functioning depends upon the total total of fixed upper-case missive of the alphabet held yesteryear a describe of piece of job concern unit. Generally, the scale of functioning volition hold out large if availability of fixed upper-case missive of the alphabet is more, in addition to vice-versa.
Thus, scale of functioning is affected in addition to influenced yesteryear fixed capital.
4. Use of technology
The engineering scientific discipline used and/or implemented yesteryear a describe of piece of job concern unit of measurement besides affects its fixed upper-case missive of the alphabet requirement. Though modern technologies are innovative inwards nature, they are oftentimes costlier to implement than traditional ones. Furthermore, skilled in addition to professionally trained manpower is required to piece of job in addition to hold these technologies. Overall, this demands to a greater extent than fixed upper-case missive of the alphabet investments from a business.
For example, companies using modern technologies require to a greater extent than fixed upper-case missive of the alphabet whereas labour-intensive companies require less fixed capital.
5. Type of products manufactured
Product is a saleable lawsuit of a serial of a production-process. Every production has to a greater extent than or less utility inwards it that aims or tries to satisfy its end-user's needs.
The total of fixed upper-case missive of the alphabet required besides depends on the type of production manufactured.
For example, if a companionship industry complex products similar automobiles, in addition to hence it volition demand to a greater extent than fixed capital. Conversely, if a companionship manufactures uncomplicated products similar newspaper clips, it volition demand fewer amounts of fixed capital.
6. Scope of activities
Scope of describe of piece of job concern is the maximum extend upwards to inside which a describe of piece of job concern tin flame human activity or perform its describe of piece of job concern activities.
If compass of describe of piece of job concern is vast, it needs higher fixed capital. For example, a companionship involved inwards multiple activities similar manufacturing, processing in addition to assembling commonly needs substantial total of fixed capital.
Similarly, if compass of describe of piece of job concern is limited, in addition to hence it requires less fixed capital. For example, if a companionship does solely assembling activities, it needs fewer amounts of fixed capital.
Thus, the compass of activities of a describe of piece of job concern besides affects or determines its fixed upper-case missive of the alphabet requirement.
7. Method of acquiring assets
Method of acquiring assets agency specific way adopted to accept possession of assets for a describe of piece of job concern use.
Generally, the assets are acquired on a:
- Rental or lease footing - It is the virtually commonly used method.
- Installment or loan footing - It is moderately used method.
- Direct buy footing - It is a rarely used method.
The required fixed upper-case missive of the alphabet besides depends on the method used for acquiring (getting the possession of) the assets. For example,
- If companionship gets its assets on a lease (rent) basis, it volition require less fixed capital.
- If companionship purchases its assets on an installment (loan) basis, in addition to hence it volition demand less fixed upper-case missive of the alphabet at the beginning.
- If companionship makes total payments initially, it volition require to a greater extent than fixed capital.
8. Government subsidy
Government subsidy is a fiscal assistance allocated to needy companies on for sure terms in addition to atmospheric condition equally framed yesteryear the concerned government.
The companies operating inwards backward (less developed) areas commonly teach a authorities subsidy (concession) for purchasing land, found in addition to machinery, in addition to other fixed assets. That is, companies buy their fixed assets for a subsidised price. Hence, they demand less fixed upper-case missive of the alphabet for their business.
However, companies operating inwards developed areas commonly practice non teach a authorities subsidy. They demand to a greater extent than fixed upper-case missive of the alphabet to run their business.
9. Miscellaneous factors
Finally, miscellaneous factors determining the fixed upper-case missive of the alphabet requirements of a describe of piece of job concern are randomly (not inwards an lodge of importance) listed equally follows:
- Lifetime of an asset, for example, those of a machine, computer, automobile, etc.
- The annual maintenance costs (AMC) charged yesteryear vendors on their customers.
- The sustainability of highly sensitive projects, for example, structure of a dam, bridge, nuclear reactor, satellite tower, etc.
- Stages inwards evolution of a describe of piece of job concern besides behave on its fixed upper-case missive of the alphabet need.
