Fixed capital consists of land, buildings, plant, machinery’, fixtures or any other property that is permanently committed to the business. (Example, for the last item is the regular working capital). These assets are not fixed in the sense of their value but fixed in the sense that they are committed to the business for a long period of time and difficult to be converted into cash in a short period. Fixed capital is usually highly specialized and if the business does not earn the minimum required rate of profits, these assets cannot be disposed of except at a loss. The fixed asset is needed to carry on profitable operations over a long period of time.

Factors affecting the requirement of fixed capital: 

1. The scale of Operations: Larger the spread of business activities, greater is the need for fixed capital. If a manufacturing enterprise is operating on a small scale, it will require less amount of fixed capital. On the other hand, a large-scale manufacturing enterprise will need relatively more amount of fixed capital.

2. Choice of Technique: Those manufacturing enterprises which make use of modern and automatic machines need a large amount of fixed capital. On the other hand, those enterprises in which production is carried out mainly through manual labour need for fixed capital is very little.

3. Technology Upgradation: There are some businesses where a fixed asset is used and which does require immediate change. These days computer technology is undergoing rapid changes. Therefore, those companies whose business is computer-based need more fixed capital.

4. Growth Prospects: 

There are two types of organisations from the point of view of growth:

• Such organisations, which have no possibility of growth. They do not need additional fixed capital in future, 

• Such organisations have more possibilities of growth. They need more additional fixed capital. Such organisations make a choice of the sources of finance well in advance so that in case of need additional finance can be made available.