The term “ Fixed capital” stands for that amount of capital which is required for long term to create production facilities through purchase of fixed assets such as plant, machinery, land , building, furniture etc. These assets represent that part of firm’s capital which is blocked on a permanent or fixed basis. The business does not intend to dispose of these assets and for this reason capital is also known as Block Capital.
The investment in the fixed assets is the first initial step in establishing a corporation. The investment in non-current assets is also called fixed capital. Such assets include items in which capital is locked up for a long period.
Although they do not indicate the investment in physical productive facilities, yet they are necessary for the conduct of the business and considered essential part of the capital arrangement.
Importance of Fixed Capital:
Fixed capital plays a vital role in the establishment of business enterprises. It is required for acquiring fixed (tangible and intangible) assets, which is the preliminary requirement for starting a company. There are certain enterprises (manufacturing and public utilities) which cannot think of running in the absence of adequate amount of fixed capital.
Right from the very beginning, when the idea to set up an industrial unit generates in the mind of the entrepreneur, the initial investment is made in fixed assets, only then, enterprise will be in a position to work smoothly.
Capital is the life blood and nerve center of a business. Just a circulation of blood is essential in the human body for marinating life, capital is very essential to maintain the smooth running of the business. The need for fixed capital cannot be over-emphasised. Every business needs some amount of capital to be invested in fixed or non-current assets so as to create production or business facilities. No business can be started without an adequate amount of fixed capital. Right from the beginning i.e conceiving an idea to business, capital is needed to promote or establish the business, acquire fixed assets, make investigations such as market surveys etc.