Justify the statement. There are various factors affecting the requirement of fixed capital
Answers
Explanation:
The capital invested in fixed assets like land and buildings, plant and machinery, furnitures and fixtures etc, is known as fixed capital. Thus fixed capital is that portion of the total capital outlay that is invested in ------------------------
------------ fixed assets.
How much is to be invested in fixed assets is determined by many factors?
1. Growth Prospects:
Higher growth of an organisation generally requires higher investment in fixed assets.
2.Scale of Operations:
A larger organisation operating at a larger scale needs higher investment in fixed assets as compared to a small organisation
3.Joint Ventures:
If companies are preferring collaborations, joint venture then companies will need less fixed capital as they can share plant and machinery with their collaborators but if company prefers to operate as independent unit then there is more requirement of fixed capital.
4.Diversification:
Diversification means running business in more products then merely one product. Those organisations which wish to adopt diversification certainly need more fixed capital.
′For example, if a textile manufacturing company starts the business of paper manufacturing, it shall have to invest heavily in land, building, machinery, etc. Therefore, it will require more additional fixed capital.