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what is fixed capital and working capital

Fixed Capital and Working Capital:

Capital may be classified into fixed capital and working capital. Fixed Capital is durable-use producer goods which are used in production again and again till they wear out. Machinery, tools, railways tractors, factories etc., are all fixed capital.

Fixed capital does not mean fixed in location. Capital like plant, tractors, and factories are called fixed because money spent upon these durable goods, remains fixed or unrealised for a long period in contrast with the money spent on purchasing raw materials which is recovered as soon as goods made with them are sold.

Working Capital, on the other hand, are the single-use producers’ goods like raw materials, fertilizers, goods in process and fuel. They are used up in a single act of production. Moreover, money spent on them is fully recovered when goods made with them are sold in the market.