DEFINITION AND SOURCES OF FIXED CAPITAL

J.O. EMMANUEL
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Fixed capital is the investments made in a fixed asset that is used in the production of goods and services.

It is the portion of the total capital spent on the acquisition of long-term assets, such as buildings, infrastructure, machinery, and equipment.

Fixed capital can also refer to the physical assets of a company that are not completely consumed in the production process, but are used repeatedly in the production process.

It consists of all the long-term assets of a business, such as buildings, equipment, machinery, and land that is used in the production of goods and services.

Fixed capital is a key component of the balance sheet of a company, and it is usually depreciated in the financial statements of the company over a long period.

Fixed capital is very important because it represents the value of the long-term investments that a company has made in its productive capacity.

Sources of Fixed capital 

There are different sources of Fixed capital including; owner's investment, retained earnings, bank loans, and stock issuance.

1. Owner's investment: This represents the first source of fixed capital available to a business, particularly for small businesses that may not have access to other sources of financing.

Since fixed asset is a requirement for all business, the owner might purchase them with his investment in the business.

2. Retained earnings: This represents the portion of a company's profit that is kept by the company for reinvestment in the business.

Since retained earnings are kept for reinvestment in the business, they can serve as an important source of fixed capital for a company as they can be used to finance long-term investments in physical assets such as buildings, plants, and equipment. The

3. Bank loans: If the owners of the business lack adequate funds to finance fixed capital, they may decide to seek loans from outside sources such as a bank.

Bank loans provide businesses with an affordable opportunity to generate the required funds for financing fixed capital, although it usually comes with interest.

4. Stock issuance: When a company issues stock, it is essentially selling ownership stakes in the company to investors in exchange for capital.

Stock issuance serves as an important source of fixed capital because it allows the business to raise the required capital for investing in fixed assets.

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