The difference between Fixed capital and Working capital represents capital to meet long-term as well as short-term requirements.
Meaning of Fixed Capital:
Fixed capital is the money invested for more than one production cycle (one year). Fixed capital includes long-term assets. Purchasing various fixed assets such as Plant and Machinery, Equipment, Furniture, Vehicles are covered under fixed capital.
Fixed-capital investments are typically depreciated on the company’s accounting statements over a long period of time.
Meaning of Working Capital:
Working capital is a net-working capital that is calculated with the company’s current assets and accounts receivable unpaid bills) and its current liabilities. working capital is required for the day-to-day activities of an organization.
Formula to calculate the W.C.=Current assets\Current liabilities
The working capital is, compared to a company’s current assets to its current liabilities, for instance by using the current ratio.
The Chart of difference between Fixed Capital and Working Capital
|
Points of differences |
Fixed Capital | Working Capital |
| Meaning | Investment is done by the business for long-term benefits. | Daily requirements are fulfilled in the business. |
| Acquiring of Assets | Fixed capital is used to buy non-current assets of the company. | Working capital is used for buying the current assets. |
| Conversion | In fixed capital, cash or kind cannot be converted immediately. | But in working capital cash or kind can be converted immediately as per the requirement. |
| Objectives | Fixed Capital is Strategy-oriented. | Working Capital is Operational. |
| Consumption | It doesn’t directly use by the business. | Business needs working capital to operate. |
| Time period | It helps for a long period of time. | It helps the business operations for a short period. |
Conclusion:
Thus, Fixed capital is the money invested for more than one production cycle (one year). Fixed capital includes long-term assets. On the other side, Working capital is a net working capital that is calculated with the company’s current assets and accounts receivable unpaid bills) and its current liabilities.
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