Fixed capital refers to the long-term assets and investments that a business uses to conduct its operations, such as property, plant, and equipment (PP&E)
. These assets are considered fixed because they are not consumed or destroyed during the actual production process and are intended to be used for an extended period of time
. Fixed capital is in contrast to working capital, which refers to the cash or other liquid assets that a business uses to cover daily operations, like meeting payroll and paying bills
. Key characteristics of fixed capital include:
- Durability : Fixed capital is durable and not fully consumed in a single production cycle
- Long-term use : Fixed capital is used repeatedly or continuously in the production process
- Illiquidity : Fixed capital is not easily liquidated or turned to cash, but it can be resold and reused at any time
- Depreciation : Fixed capital investments are typically depreciated on the company's accounting statements over a longer period of time
Examples of fixed capital include:
- Real estate
- Commercial ovens and construction equipment
- Vehicles and machinery
- Installations and physical infrastructures
- The value of land improvements and buildings
The amount of fixed capital required by a business varies by industry and is essential for running a successful business
. Fixed capital investments can be made through various means, such as loans, bond issues, or equity financing
