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What are the factors determining the requirement of fixed capital ?

Fixed capital requirement varies from business to business. There are various factors affecting requirement of fixed capital and these are ;

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(i) Type of Business:

The type or nature of business determines the fixed capital requirement of a concern. Manufacturing concerns require more of fixed capital as they have to invest heavily on purchase of land, plant and machinery building, furniture etc. Various public utility undertakings like Railways, Electricity, Water supply, P & T etc. have to invest heavily on fixed assets. Trading organisations are not required to invest more on fixed capital.

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They have to invest more on current assets like stocks, receivables and cash. These units require more of working capital.

(ii) Size of Business:

Fixed capital requirement varies with the size of business or scale of operations. Larger is the size or scale of operation of a business more will be the fixed capital requirement of the concern.

(iii) Techniques of Production:

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Fixed capital requirement will be based On the type of production technology used in the concern. Where production technology is capital intensive more fixed capital will be required. On the other hand labour intensive production technology will need less investment on fixed capital.

(iv) Activities Undertaken:

The number of activities undertaken by a firm will determine its fixed capital requirement. In case an undertaking undertakes all the activities involving purchase, production and sale of its products, it will need more of fixed capital investment. On the other hand a firm doing only manufacturing or sale will require less amount for fixed capital needs.

Management of fixed capital involves raising of requisite fixed capital at minimum cost and ensuring its effective and efficient utilization..

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