Working capital - Gghh PDF

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Difference Fixed Working Differ ence Between Fix ed Capital and W orking Capital Capital 1. Fixed Capi tal is the capital which is in invested vested by the company in procuring the fix fixed ed assets req required uired fo forr the working of the bus business iness whereas 2. Working Capital is the capital which is require required d by the compan company y for the purpose of financing its da day y to day oper operations. ations. Capital is a critical ingredient in any business. Without capital, no business can be run, and no business can exist. Capital can be categorized in two forms – fixed capital and working capital.  Fixed capital is used to acquire non-current assets that would serve the business for more than one accounting period.  On the other hand, working capital is used to serve the business on a day-to-day basis fulfilling the requirement of everyday In this article, we will look at each of them separately and would also look at a comparative analysis between them. Fixed Cap Capital ital vs W Working orking Capital Infog Infogrraphic

Key Diff Differences erences Between Fix Fixed ed Capital and W Working orking Capital  Fixed capital supports the business indirectly. Working capital supports the business directly.  Fixed capital is invested in long-term assets. Working capital is invested in current assets.  Fixed capital is required before the business starts. Working capital is required after the business gets started.  Fixed capital can’t be liquidated into cash immediately. Working capital can be liquidated into cash immediately.  Fixed capital serves the business for a very long period. Working capital serves the business for a brief period.  The orientation of fixed capital is strategic. The orientation of working capital is operational. Compara Comparative tive T Table able Basis for Comparison Meaning

Acquiring types of assets

How liquid is it? Conversion Conv ersion

Term

Fixed Capital

Working Capital

Fixed capital is the investments done by the business for accruing long-term benefits. Fixed capital is used to acquire non-current assets of the company. Not at all liquid.

Working capital is the daily requirement pumped into the business.

It can’t be converted into cash or kind immediately. Serves the business for an extended period;

Working capital is used to acquire the current assets of the company. Very much liquid. It can be converted into cash or kind immediately. Serves the business for a concise period;

Accounting period Objective Consumption

It offers benefits for more than one accounting period. Strategy-oriented. It doesn’t directly get consumed by the business but serves the business indirectly.

It offers benefits for less than one accounting period. Operational. Business needs working capital to operate.

Conclusion Fixed capital and working capital, both are imperative for a business to run and perpetuate. And it’s not right to say that one is more important than the other

Capital is the basic requirement of the business entities for doing business. After considering the above points, 1. it is quite clear that fixed capital and working capital, together

2.

known as total capital. They are not contradictory in nature, but they complement each other in a sense that working capital is needed to use the fixed assets of the business, i.e. there is no use of plant & machinery if the raw material is not used for production. So, working capital ensures the profitable use of fixed assets of the company....