Difference Between Fixed Capital and Working Capital

Publication Date :

15 Jan, 2018

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Table Of Contents

Fixed Capital and Working Capital Differences

The primary difference between fixed capital and working capital is that Fixed Capital is the capital invested by the company in procuring the fixed assets required for the business's working. In contrast, the company's working capital is required to finance its day-to-day operations.

Capital is a critical ingredient in any business. Without capital, no business can be run, and no business can exist. Capital can be categorized into two forms – fixed capital and working capital.

Fixed capital is used to acquire non-current assets that would serve the business for more than one accounting period.
On the other hand, working capital is used to serve the business on a day-to-day basis fulfilling the requirement of everyday production and operation.

Fixed Capital and Working Capital Differences

In this article, we will look at each of them separately and will also look at a comparative analysis between them.

Fixed Capital vs Working Capital Infographics

Working Capital vs. Fixed Capital Video Explanation

Key Differences Between Fixed Capital and Working Capital

Fixed capital supports the business indirectly. Working capital supports the business directly.
Fixed capital is invested in long-term assets. Working capital is invested in current assets.
Fixed capital is required before the business starts. Working capital is required after the business gets started.
Fixed capital can’t be liquidated into cash immediately. Working capital can be liquidated into cash immediately.
Fixed capital serves the business for a very long period. Working capital serves the business for a brief period.
The orientation of fixed capital is strategic. The orientation of working capital is operational.

Comparative Table

Basis for Comparison	Fixed Capital	Working Capital
Meaning	Fixed capital is the investments made by the business for accruing long-term benefits.	Working capital is the daily requirement pumped into the business.
Acquiring types of assets	Fixed capital is used to acquire non-current assets of the company.	Working capital is used to acquire the current assets of the company.
How liquid is it?	Not at all liquid.	Very much liquid.
Conversion	It can’t be converted into cash or kind immediately.	It can be converted into cash or kind immediately.
Term	Serves the business for an extended period;	Serves the business for a concise period;
Accounting period	It offers benefits for more than one accounting period.	It offers benefits for less than one accounting period.
Objective	Strategy-oriented.	Operational.
Consumption	It doesn’t directly consumed the business but serves the business indirectly.	Business needs working capital to operate.

Conclusion

Fixed capital and working capital are imperative for a business to run and perpetuate. And it’s not right to say that one is more important than the other.

However, without fixed capital, it’s impossible to start a business. And after the business gets started, it's impossible to run a business without working capital.

Every business, thus, needs to take special care of them both. But it is equally important to invest in the right assets so that the business can benefit from the assets and make use of them regularly.