Fixed Capital


DEFINITION of 'Fixed Capital'

Assets or capital investments that are needed to start up and conduct business, even at a minimal stage. These assets are considered fixed in that they are not used up in the actual production of a good or service, but have a reusable value. Fixed-capital investments are typically depreciated on the company's accounting statements over a long period of time, up to 20 years or more.

Examples include factories, office buildings, computer servers, insurance policies, legal contracts and manufacturing equipment – anything that is not continually purchased in the course of production of a good or service.

BREAKING DOWN 'Fixed Capital'

The amount of fixed capital needed to set up a business is quite variable, especially from industry to industry. Some lines of business, by their nature, require high fixed-capital investment. Common examples would include industrial manufacturers, telecommunications providers and oil exploration firms.

Fixed-capital investments typically don't depreciate in the even way that is shown on income statements. Some devalue quite quickly, while others have nearly infinite "usable" lives. But the depreciation method allows investors to see a rough estimate of how much value fixed-capital investments are contributing to the current performance of the company.

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  3. Variable Cost

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  1. How is working capital different from fixed capital?

    There are several key differences between working capital and fixed capital. Most importantly, these two forms of capital ... Read Full Answer >>
  2. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  3. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  4. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  5. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  6. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>

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