trading business state whether the requirement fixed capital is lower or higher
Answers
Explanation:
Fixed Capital: It refers to that capital which is used for the purchase of fixed assets, such as land, building, machinery, furniture, etc.
Amount of fixed capital depends upon the following factors:
Nature of Business: The requirement of fixed capital depends on the nature of the business. Manufacturing business requires the heavy amount of fixed capital to invest in the fixed assets like- Land&Building, Plant and Machinery, Furniture etc, whereas trading concern business requires less capital.
Scale of Operations: Business operating on a larger scale requires a larger amount of fixed capital as they need heavy and bigger machinery and equipment. However, firms operating at small scale need relatively lesser fixed capital.
Choice of Technique: Those manufacturing enterprises which make use of modern and automatic machines need a large amount of fixed capital. On the other hand, those enterprises in which production is carried out mainly through laborer, need for fixed capital is very little.
Technology Upgradation: There are some businesses where a fixed asset is used and which does require immediate change. These days computer technology is undergoing rapid changes. Therefore, those companies whose business is computer-based need more fixed capital.
Growth Prospects: There are two types of organizations from the point of view of growth: (a) Organisations, which have no possibility of growth. They do not need additional fixed capital in future. (b) Organisations which have more possibilities of growth. They need more additional fixed capital.
Diversification: Diversification means running a business in more products than merely in one product. Those organizations which wish to adopt diversification certainly need more fixed capital.