Difference Between Fixed And Working Capital
The main dissimilarities or difference between fixed capital and working capital can be pointed out as follows:
1. Introduction
Fixed Capital: Fund used to acquire long term assets such as land, building, plant, machinery etc.
Working Capital: Fund used to fulfill day-to-day requirements for business such as raw materials, maintenance, work in progress etc.
2. Liquidity
Fixed Capital: Less liquid than working capital
Working Capital: Highly liquid than fixed capital
3. Conversion
Fixed Capital: It is very difficult to convert fixed capital into cash because of less liquidity
Working Capital: Due to high liquidity it is easy to convert working capital into cash
4. Period
Fixed Capital: It can be used for long period of time
Working Capital: It is used for short period
5. Requirement
Fixed Capital: It is required to commence or to expand the business
Working Capital: It is required to meet daily business requirements
6. Nature Investment
Fixed Capital: One time investment
Working Capital: Requires regularly
7. Focus/Aim
Fixed Capital: It focuses on long-term return
Working Capital: It aims to fulfill day-to-day requirements
Also Read:
Also Read:
8. Amount
Fixed Capital: Huge amount of capital is required
Working Capital: Less amount is required
9. Source
Fixed Capital: Equity share, preference share, debentures and different forms of long term loans
Working Capital: Short term loan, profits etc are the major sources of working capital
Fixed Capital Vs Working Capital (Comparison Chart)
I hope this post is helpful to understand the difference between fixed and working capital and to make comparison between them.
Fixed Capital Vs Working Capital (Comparison Chart)
Basis For Difference
|
Fixed Capital
|
Working Capital
|
Introduction
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Fund or capital used for acquiring long term assets
|
Fund or capital used to meet daily business requirements
|
Liquidity
|
Less
|
High
|
Conversion Into Cash
|
Difficult
|
Easy
|
Period/Time
|
Long period
|
Short Period
|
Requires To
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Commence or expand business
|
Fulfill daily financial needs
|
Investment Type
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One time
|
Regular
|
Aim/Focus
|
Long term return
|
Smooth operation of business
|
Amount Of Capital
|
Huge
|
Less
|
Examples
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Debentures, equity share, preference share etc.
|
Profit, short term borrowings etc.
|
I hope this post is helpful to understand the difference between fixed and working capital and to make comparison between them.
