State any four factors affecting fixed capital requirement
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Explanation:
The requirement of fixed capital depends upon various factors which are explained below:
Nature of Business: ADVERTISEMENTS: ...
Scale of Operation: ...
Technique of Production: ...
Technology Up-gradation: ...
Growth Prospects: ...
Diversification: ...
Availability of Finance and Leasing Facility: ...
Level of Collaboration/Joint Ventures
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i. Nature of Business:
The nature of business plays a vital role in determining fixed capital requirement. For e.g. Rail, roads and other public utility services have large fixed investment. Their working capital requirements are nominal as they supply services and not products. They mainly deal in cash sales only. On the other hand, trading organizations like retailers require less of fixed capital as they do not need large funds for land, building, plants and machineries.
ii. Size of Business:
Bigger the business, higher is the need of fixed capital. Hence, the size of a firm, either in terms of its assets or sales affects the need of fixed capital.
iii. Growth and Expansion:
In order to manage growing production and turnover, a growing firm may need to invest more in fixed assets.
iv. Stage of Development of Business:
The requirement of fixed capital for a newly established organization is more than that of an established organization.
v. Business Cycle:
When there is a boom period in an economy, the organization invests more in fixed assets so as to increase its production capacity.
However, during recession, the organization avoids undertaking huge projects, and hence, it may not require more of fixed capital.
Hope it helps.. thanks
The nature of business plays a vital role in determining fixed capital requirement. For e.g. Rail, roads and other public utility services have large fixed investment. Their working capital requirements are nominal as they supply services and not products. They mainly deal in cash sales only. On the other hand, trading organizations like retailers require less of fixed capital as they do not need large funds for land, building, plants and machineries.
ii. Size of Business:
Bigger the business, higher is the need of fixed capital. Hence, the size of a firm, either in terms of its assets or sales affects the need of fixed capital.
iii. Growth and Expansion:
In order to manage growing production and turnover, a growing firm may need to invest more in fixed assets.
iv. Stage of Development of Business:
The requirement of fixed capital for a newly established organization is more than that of an established organization.
v. Business Cycle:
When there is a boom period in an economy, the organization invests more in fixed assets so as to increase its production capacity.
However, during recession, the organization avoids undertaking huge projects, and hence, it may not require more of fixed capital.
Hope it helps.. thanks
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