Fixed Capital:

Fixed capital refers to the long-term investment made by a business in order to carry out its operations efficiently and effectively. It represents the assets that are used repeatedly in the production process over an extended period of time. These assets are not meant for immediate resale and are not easily converted into cash. Fixed capital is essential for the smooth functioning and growth of a business.

Key Points:

- Nature of Fixed Capital: Fixed capital consists of tangible assets such as land, buildings, machinery, equipment, vehicles, and furniture. These assets have a long life and are used in the production process for several years.

- Long-term Investment: Fixed capital requires a substantial amount of investment and is typically held by a business for a longer duration. It is not easily liquidated or converted into cash.

- Productive Capacity: Fixed capital plays a crucial role in determining the productive capacity of a business. It enables the production of goods and services on a large scale, leading to increased output and profitability.

- Capital Expenditure: Acquiring fixed capital involves significant capital expenditure. Businesses often need to make substantial investments in purchasing or constructing assets, which requires careful financial planning and budgeting.

- Depreciation: Fixed capital assets experience wear and tear over time, resulting in depreciation. Businesses need to account for depreciation expenses in their financial statements to reflect the decrease in the value of these assets.

Working Capital:

Working capital refers to the funds that a business requires for its day-to-day operations. It represents the difference between a company's current assets and current liabilities. Working capital is crucial for the smooth running of a business as it ensures the availability of cash and resources to meet short-term obligations and sustain ongoing operations.

Key Points:

- Nature of Working Capital: Working capital is composed of current assets such as cash, accounts receivable, inventory, and short-term investments. It also includes current liabilities like accounts payable and short-term debts.

- Short-term Requirements: Unlike fixed capital, working capital is needed to address immediate financial needs and obligations. It ensures that a business can cover its day-to-day expenses, pay salaries, procure inventory, and meet short-term liabilities.

- Liquidity: Working capital is highly liquid and can be easily converted into cash within a short period of time. It provides the necessary liquidity to fund the ongoing operations of a business.

- Working Capital Management: Efficient management of working capital is crucial for maintaining a healthy cash flow and avoiding liquidity issues. It involves managing inventory levels, optimizing accounts receivable and payable, and effectively utilizing short-term financing options.

- Working Capital Cycle: The working capital cycle represents the time it takes for a business to convert its investments in inventory and other resources into cash. An effective working capital management strategy aims to reduce this cycle and improve cash flow.

In conclusion, fixed capital represents the long-term assets that are essential for a business's operations, while working capital represents the short-term funds required for day-to-day activities. Both types of capital play critical roles in the overall financial health and success of a business.

Working capital means your have to invest again and again on a same thing again and again within a duration of 1 year. Eg. raw materials, money.fixed capital means if you have invested once on a particular thing than you don't need to invest on it over many years till it is kept in a proper condition. Eg. computers, a/c, generators, turbines, etc.