Business, Legal & Accounting Glossary
Finance provided to support the acquisition of fixed assets.
Capital required for acquiring fixed assets is termed as fixed capital. Growth of any economy is generally judged by its ability of capital formation and rate of capital accumulation. Fixed capital can be used over a long period of time. The part of capital, which is used in investing in fixed assets is referred to as fixed capital in economics.
To augment the stock of fixed capital one has to depend on both owned and borrowed capital. Owned capital can be accumulated by issuing debentures. Borrowed capital is the usage of loans from financial institutions. Equity shares are an excellent source of fixed capital. A company issues equity shares to gain capital. Loans from various financial institutions are also an ideal source for getting long-term credit.
Fixed capital is that form of capital, which can be used in the long run. Residential properties, land, and machinery all are fixed capital. The first step for setting up a business venture is to invest in fixed capital. Fixed capital includes all those investments in which capital is locked for quite a long time. Fixed capital is essential for any type of business. In case of a crisis, a capital arrangement can be done. Some business cannot be run without a certain amount of fixed capital. Fixed capital is not only needed for buying fixed assets but is also necessary for establishing a new business venture. Fixed capital is considered as one of the major financial resources for any business venture. This resource should be utilized properly for better functioning of any business.
Gross fixed capital formation referred to as a microeconomic concept, is a measure of net new investments in fixed capital in a domestic economy. Sometimes it becomes impossible to measure the total value of a fixed capital stock, then a fair measure of fixed capital can be obtained through gross fixed capital formation.
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This glossary post was last updated: 27th March, 2020 | 117 Views.