Working capital is the funds utilized for running the day to day operations of the business.
Example – In the case of a manufacturing company, funds are needed for purchasing raw materials, payment of wages and for other production utilities!


Where as Fixed capital is the funds utilized to acquire assets which are applied in the over a longer time period!

Example – Fixed capital is generally used to acquire tangible fixed assets such as plant and machinery, furniture etc !!

Differentiating between Fixed and Working Capital

Introduction:
In the business world, capital is a crucial aspect that determines the success and growth of a company. Capital can be broadly classified into two categories: fixed capital and working capital. Although both terms relate to the financial resources of a business, they have distinct characteristics and purposes. Let's delve into the differences between fixed and working capital.

Fixed Capital:
Fixed capital refers to the funds invested in long-term assets that are essential for the operation of a business. These assets have a longer life span and are not intended for immediate sale or conversion into cash. Fixed capital is primarily used to generate income over an extended period. Key features of fixed capital include:

1. Nature: Fixed capital is of a permanent nature and is not readily convertible into cash.
2. Usage: It is utilized for procuring long-term assets such as land, buildings, machinery, furniture, etc.
3. Investment: Fixed capital represents a significant investment made by the business and is not easily reversible.
4. Value: The value of fixed capital remains constant or may even appreciate over time, depending on market conditions.
5. Risk: Since fixed capital is tied up in long-term assets, it carries a higher risk as it may not be easily liquidated in case of financial emergencies.

Working Capital:
Working capital refers to the funds required to finance the day-to-day operations of a business. It represents the liquidity available to a company to meet its short-term obligations, such as payment of salaries, purchase of raw materials, and other operational expenses. Key features of working capital include:

1. Nature: Working capital is of a temporary nature and is readily convertible into cash.
2. Usage: It is used to support the daily operational needs of a business, ensuring smooth functioning and uninterrupted production.
3. Investment: Working capital represents a smaller portion of the total capital investment and is constantly being replenished through revenue generation.
4. Value: The value of working capital fluctuates depending on the cash flow and operational requirements of the business.
5. Risk: Working capital carries a lower risk as it is readily available to meet short-term financial obligations and emergencies.

Conclusion:
To summarize, fixed capital and working capital are two distinct forms of capital used by businesses. Fixed capital is employed to acquire long-term assets, while working capital is utilized for day-to-day operational needs. Understanding the differences between fixed and working capital is essential for effective financial management and decision-making within a company. By maintaining an appropriate balance between both types of capital, businesses can ensure smooth operations, financial stability, and long-term growth.