Distinguish between the following.
Fixed Capital and Working Capital.
|Fixed Capital||Working Capital|
|Fixed capital refers to any kind of physical capital i.e. fixed assets.||Working capital refers to current assets minus current liabilities.|
It stays in business almost permanently i.e. for more than one accounting year.
|It stays in business for a short period of time. Thus, working capital is circulating capital.|
|Fixed Capital is invested in long-term assets such as land, building equipment, etc.||Working capital is invested in short-term assets such as cash, account receivable, inventory, etc.|
|Fixed Capital funding can come from issuing shares, debentures, long-term loans, etc.||Working Capital funding can come from short-term loans, deposits, trade credit, etc.|
|5. Objective of investor|
|The investor invests money in fixed capital to make a future profit.||The investor invests money in working capital for getting an immediate return.|
|6. Risk Involved|
|The risk involved in fixed capital is high.
||The risk involved in working capital is less as compared to fixed capital.|
Concept: Capital Requirements
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