Q.Distinguish between fixed capital and working capital.

Fixed capital is the money invested in long-term, permanent assets of a company, while working capital is the money needed to meet its day-to-day running expenses. They differ in purpose, sources, time horizon and the type of assets they fund.

A company requires funds at two clearly different levels. When a business is set up or expanded, it must buy durable assets that will serve it for many years; the money locked into these assets is called fixed capital. Once the business is running, it constantly needs money to pay for raw material, wages, power and other recurring expenses until sales convert back into cash; this circulating money is called working capital.

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