Fixed Capital vs Working Capital - Top Differences

What is Fixed Capital?

Fixed Capital (FC) implies the fund investment created in the long term belongings (assets) of the firm. It is a mandatory necessity of an enterprise during its primary stage, i.e. to begin the business concern or to administer the existing trade. It is that portion of the entire fund, which isn’t utilised for manufacturing but they are kept in trade for more than 1 accounting cycle. Its character is perpetual which subsist in the framework of intangible and tangible assets of the firm.

Also Read: Maintenance of Capital Accounts of Partners

What is Working Capital?

WC is the gauge that measures the economic soundness and functional effectiveness of the firm. However, it is the result of current assets minus current liabilities, whereas current assets are the assets which can be transformed into cash within 1 year, namely cash, debtors, inventories, etc., whilst current liabilities are those liabilities that decrease outstanding for pay in 1 year, namely, bank overdraft, short term loans, tax provision, creditors, etc.,

This article is a ready reckoner for all the students to learn the difference between Fixed Capital and Working Capital.

Fixed Capital Working Capital
Definition
Investing capital in the long term assets of an enterprise. Working capital is the capital invested in the current assets of an enterprise.
Types of assets acquired
Used to acquire non-current assets for the company Used to acquire current assets for the company
Liquidity
Fixed capital is not at all liquid Working capital is highly liquid
Conversion to cash
Not possible to convert into cash Can be converted into cash
Objective served
Serves strategy oriented objectives  Serves operational objectives

Must Read: Articles for Commerce Students

The above mentioned is the concept, that is elucidated in detail about ‘Difference between the Fixed Capital and Working Capital’ for the Commerce students. To know more, stay tuned to BYJU’S.

 

 

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