Factors for fixed capital requirements скачать в хорошем качестве

Factors for fixed capital requirements

Factors affecting fixed capital requirement : 1. Nature of business : Manufacturing industries and public utilities have to invest huge amount of funds to acquire fixed assets. While Trading business may not need huge investments in fixed assets. 2. Size of business : Where a business firm is set up to carry on large scale operations, its fixed capital requirements are likely to be high. It is because most of their production processes are based on automatic machines and equipments. 3. Scope of business : There are business firms which are formed to carry on production or distribution on a large scale. Such businesses would require more amount of fixed capital. 4. Extent of lease or rent : If entrepreneur decides to acquire assets on lease or on rental basis, less amount of funds for fixed assets will be needed for the business. Lease : A contract by which one person grants possession of some of his property especially land, building or machinery to another for a certain period of time. 5. Arrangement of sub-contract : If the business wants to sub-contract some processes of production to others, limited assets are required to carry out the production. It would minimise fixed capital requirement of business. 6. Acquisition of old assets : If old equipments and plants are available at low prices, then it would reduce the need for investment in fixed assets. 7. Acquisition of assets on concessional rate : With the view to foster industrial growth at regional level, the government may provide land and building, materials at concessional rates. Plants and equipments may also be made available on instalment basis. Such facilities will reduce the requirement of fixed assets. 8. International conditions : This factor is very significant particularly in large organisations carrying business on international level. For example : companies expecting war, may decide to invest large funds to expand fixed assets before there is shortage of materials. 9. Trend in economy : If the future of the company is anticipated to be bright, it gives green signal to business entrepreneur to carry out all sorts of expansion of business firm. In that case, large amount of funds are invested in fixed assets so as to reap the benefits in future. 10. Population trend : When the population is increasing at high rate, certain manufactures find this as an opportunity to expand business. For example- automobile industry, electronic goods manufacturing industry, ready-made garments, etc. which necessitates huge amount of fixed capital. 11. Consumer preference : Industries providing goods and services which are in good demand, will require large amount of fixed capital. For example - Mobile phone manufactures as well as mobile network providers. 12. Competitive factor : This factor is prime element in decision making regarding fixed capital requirements. If one of the competitor’s shifts to automation, the other companies in the same line of activity, will be compelled to follow that competitor.