“Fixed capital denotes that portion of capital that is invested in fixed assets such as land and buildings, plant and machinery, tools, furniture, etc.”

Fixed capital is required for acquisition of fixed assets that are to be used repeatedly over a long period of time. Fixed assets are those assets which are required for permanent use by the company and are nto meant for resale. They are not convertible into cash within one year. Such assets include land, building, plant and machinery, furniture, patents, etc. Fixed capital is used for meeting the permanent needs of the company. It is the capital which is used again and again to generate revenues for the company.

The importance of fixed capital arises because of the following factors:

(i)    Fixed capital is invested in assets and long-term projects whose benefits will be received in future.
(ii)    Investment in fixed capital would enhance the future earning capacity of the business.
(iii)    Investment in fixed capital would improve the growth prospects of the business.

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