Factors Affecting the Requirement of Fixed Capital
(i) Nature of Business: The type of business is a factor in determining the fixed capital requirements. For e.g, manufacturing concerns require huge capital investment in fixed assets but trading concerns need less fixed capital investment.
(ii) Scale of Operations: The scale of operations reflects the capacity of a business to produce a feasible amount of products/seryices. A large-scale business will accordingly require a relatively more fixed-capital than a small-scale business.
(iii) Choice of Technique: An organisation using capital-intensive techniques requires more investment in fixed assets as compared to an organisation using labour intensive techniques.
(iv) Technology upgradation: An organisation using obsolete assets require more fixed capital as compared to other organisations.
(v) Growth Prospects: Companies which are expanding and having higher growth prospects require more fixed capital investments, in order to expand their production capacity.
(vi) Diversification: If a company goes for diversification then it will require more fixed capital investment in plant and machinery etc.