Q.4 (1) Distinguish between Fixed capital and Working capital.
Best answer
Answer: Distinction between Fixed capital and Working capital
| Point | Fixed capital | Working capital |
|---|---|---|
| Meaning | Capital invested in fixed assets like land, building and machinery. | Capital invested in current assets like stock, debtors and cash for day-to-day operations. |
| Purpose | To acquire long-term assets and set up the business. | To meet day-to-day expenses and run the business smoothly. |
| Period | Invested for a long period. | Invested for a short period; it keeps circulating. |
| Sources | Long-term sources: shares, debentures, retained earnings, long-term loans. | Short-term sources: deposits, bank overdraft, trade credit, commercial paper. |
| Liquidity | Not liquid; it is blocked in fixed assets. | Highly liquid; it is converted into cash in the operating cycle. |
| Nature of business | Large in manufacturing and public utility concerns. | Large in trading concerns. |
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