Fixed Capital

What is '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.

RELATED TERMS
  1. Net Investment

    The amount spent by a company or an economy on capital assets, ...
  2. Depreciation

    1. A method of allocating the cost of a tangible asset over its ...
  3. Depreciable Property

    Any type of asset that is eligible for depreciation treatment. ...
  4. Accumulated Depreciation

    The cumulative depreciation of an asset up to a single point ...
  5. Fully Depreciated Asset

    A property, plant, or piece of equipment which, for accounting ...
  6. Depreciated Cost

    1. The value of an asset net of all accumulated depreciation ...
Related Articles
  1. Investing

    What's a Fixed Asset?

    Fixed assets are tangible property that a business uses in the process of producing income. To qualify as a fixed asset, the item cannot be consumed or sold in less than a year. Fixed assets ...
  2. Professionals

    Depreciation

    CFA Level 1 - Depreciation. Summarizes the methods of depreciation, including the sinking-fund approach, and their impact on financial statements, taxes and ratios.
  3. Professionals

    Types Of Depreciation

    These are types of depreciation that companies face.
  4. Professionals

    Depreciation Accounting

    CFA Level 1 - Depreciation Accounting. This sections covers depreciation accounting. Includes formulas and sample calculations for a few common methods of finding depreciation.
  5. Professionals

    Fixed Asset Disclosures

    CFA Level 1 - Fixed Asset Disclosures. Learn how analysts use fixed asset disclosures to estimate the age of a company's assets. Provides three methods of estimating asset age.
  6. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  7. Options & Futures

    Financial Statements: Long-Lived Assets

    By David Harper (Contact David)In the preceding section, we examined working capital, which refers to the current assets and liabilities of a company. In this section, we take a closer look at ...
  8. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  9. Professionals

    Depreciation

    Depreciation
  10. Professionals

    Capital Cost Allowance And Depreciation

    Depreciation can be used as a tax deduction.
RELATED FAQS
  1. Can working capital be depreciated?

    Learn the difference between expensing and depreciation for current and long-term assets, and how working capital can be ... Read Answer >>
  2. Why do companies often treat events such as the purchase of an asset or construction ...

    Understand the capitalized costs of fixed assets and learn how they are reflected on a company's balance sheet and income ... Read Answer >>
  3. What is the relationship between accumulated depreciation and depreciation expense?

    Understand the relationship between accumulated depreciation and depreciation expense. Learn how each one is accounted for ... Read Answer >>
  4. What would cause a decrease in accumulated depreciation?

    Understand what causes a decrease in a company's accumulated depreciation. Learn why a company's accumulated depreciation ... Read Answer >>
  5. What happens to accumulated depreciation when you sell an asset?

    Learn what happens to a company's accumulated depreciation when it sells an asset. Understand why accumulated depreciation ... Read Answer >>
  6. Why was the practice of depreciating assets for accounting purposes created?

    Read about why the practice of depreciation was created and how the uses of depreciation have morphed to adapt to technological ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center