Difference WikiAccounting

Difference Between Fixed Capital and Working Capital

Main Difference

The main difference between Fixed Capital and Working Capital is that Fixed Capital mentions the investment of the initiative in long term possession of the company, whereas Working Capital means the capital that is investing in the actual properties of the company.

Fixed Capital vs. Working Capital

Fixed Capital means the capital, which is investing in obtaining static assets for a business, whereas working capital represents the amount of money that is utilizing for daily business activities. Fixed capital is essential to support the appropriate working of the company, it is applying to serve long term necessities, while working capital is also necessary to care for business procedures, and it is relating to assist short term requirements. Fixed capital is using to obtain such non-current assets that are applying for an auxiliary accounting period, whereas working capital is using to achieve elements of daily production and operation.

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Fixed capital does not have the facility to convert into cash immediately, while working capital has a facility to turn into money quickly. Fixed capital is obligatory before the business is starting, whereas working capital is obligatory after the company gets the start. The direction of fixed capital is tactical, while the alignment of working capital is operative. The fixed capital is requiring extra in an amount as parallel to working capital, whereas the working capital is requiring a lesser in an amount as equate to fixed capital.

Fixed capital is indirectly supporting business, whereas working capital is directly supporting business. Fixed capital is suggesting profit for more than one secretarial period, while working capital is suggesting benefit for less than one accounting period.

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Comparison Chart

Fixed CapitalWorking Capital
It is the investments doing in business for growing long term profits.It is the daily prerequisite inflating into the business.
Liquidity
Not at allVery much
Uses
To buy non-current assets of the businessUse for short term investment.
Converters into Cash
Not immediatelyimmediately
Object
StrategyOperational
Consumption
IndirectlyDirectly
Serves For
Serves business for a long timeServes industry for a short time
Accounting Period
More than oneLess than one
Serving Period
The long periodThe short period

What is Fixed Capital?

Fixed capital means investments in business for increasing long term profits. It is using to generate long term assets in the corporation. Fixed capital is essential to get the start in business, and it is a compulsory requirement; it is not only using for financing the company but also using it to establish the business in its initial stage. Fixed capital is the part of such total money that is applying for manufacturing the products. Fixed capital depends on its nature in any business it is keeping in business for more than one accounting period. It is about everlasting, and it exists in the company as a real and elusive asset.

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As the fixed capital is projecting for long term use and it is not efficiently liquidating, though fixed capital is using to buy non-current assets of the company, that’s why it is hard to transfer into cash rapidly. Fixed capital focuses on the accounting preparation of reduction. Fixed capitals do not directly serve or produce anything. It only helps and serves indirectly to the company to get long term profit. Fixed capital is assisting the business for a very long period.

The alignment of fixed capital is intentional, and Fixed capital is not taking regularly in business, It is requiring when a company intends to make any considerable investment like increasing of business or getting of more fixed assets. The fixed capital is expecting more in capacity if we compare it to working capital.

What is Working Capital?

Working capital is an indicator that estimates fiscal security and running proficiency of the company. Working capital is using to invest in daily business activities. Working capital defines the short term prosperity situation and liabilities of the company. Working capital is applying for short term funding, and Working capital is the everyday necessity that is pushing into the business. It requires after the business starts, and it is using to run the business. Working capital directly supports business activities. It is keeping in business for less than one accounting period.

Working capital is assigning for short term use, and it is quickly liquidating, though Working capital is investing to buy current assets, that’s why it is elementary and easy to transfer into cash immediately. The working capital directly invests in business to produce anything or to purchase anything. It is serving the company for a short period.

The alignment of working capital is operative, and working capital is regularly using in business, such as payments against purchasing, salaries, daily wages, etc. The working capital is requiring less in an amount as parallel to fixed capital. Working capital may be positive and negative as well if the percentage of current assets to liabilities is less than one it shows negative working capital, Positive working capital shows that a company deposits its existing procedures and invest for future activities and development. The regular formula to get working capital is to minus current assets into current liabilities.

Key Differences

  1. Fixed capital is using for business growth, whereas working capital is using for daily expenses.
  2. Fixed capital is investing for long term assets, and on the other hand, working capital covers short term assets.
  3. Fixed capital cannot change into cash quickly; conversely, working capital can turn into cash easily.
  4. Fixed capital is an indirect supporter of business; conversely, working capital is a direct supporter of business.
  5. Fixed capital is strategic; on the flip side, working capital is operational.
  6. Fixed capital is essential before starting a business, whereas working capital is essential after starting a business.
  7. Fixed capital is demanding in more quantity; on the flip side, working capital is requiring in less amount as compare to each other.

Conclusion

Fixed capital and working capital both are total capital; both are not conflicting, though fixed capital is requiring to establish the business, in the same way, working capital is requiring to run the business. It is not accessible to analyses which one is more important.