Question

Distinguish between Fixed capital and Working capital.

Answer 1

	Points	Fixed capital	Working capital
1.	Meaning	Fixed capital refers to any kind of physical capital. i.e., fixed assets.	Working capital refers to current assets minus current liabilities.
2.	Nature	It stays in the business almost permanently.	Working capital is circulating capital. It keeps changing.
3.	Purpose	It is invested in fixed assets such as land, buildings, equipments, etc.	Working capital is invested in short-term assets such as cash, accounts receivable, inventory, etc.
4.	Sources	Fixed capital funding can come from selling shares, debentures, bonds, long-term loans, etc.	Working capital can be funded with short-term loans, deposits, trade credit, etc.
5.	Objectives of investment	Investors invest money in fixed capital, hoping to make a future profit.	Investors invest money in working capital for getting immediate returns.
6.	Risk Involved	Investment in fixed capital implies more risk.	Investment in working capital is less risky.