Page 1 - Lesson Note 5
P. 1
SAI INTERNATIONAL SCHOOL
Class-12
th
Business studies
Chapter – 9, Financial Management
Topics: Fixed capital, Importance and factors.
(Lesson - 34)
Meaning every company needs funds to finance its assets and activities.
Investment is required to be made in fixed assets and current assets.
Fixed assets are those which remain in the business for more than one
year, usually for much longer, e.g., plant and machinery, furniture and
fixture, land and building, vehicles, etc. Decision to invest in fixed assets
must be taken very carefully as the investment is usually quite large.
Such decisions once taken are irrevocable except at a huge loss. Such
decisions are called capital budgeting decisions.
Management of Fixed capital refers to investment in long-term assets.
Management of fixed capital involves allocation of firm’s capital to
different projects or assets with long-term implications for the
business. These decisions are called investment decisions or capital
budgeting decisions and affect the growth, profitability and risk of the
business in the long run.
These long term assets last for more than one year. It must be financed
through long-term sources of capital such as equity or preference
shares, debentures, long-term loans and retained earnings of the
business.
