The Finance Manager of a manufacturing company considers the following points while determining the fixed capital requirements of the company :
(i) Nature of business: A trading firm needs lower investment in fixed assets since it does not require to purchase plant and machinery. So, its fixed capital requirement is lower. On the other hand, a manufacturing firm requires more fixed capital since it has to purchase plant and machinery.
(ii) Scale of operations : A larger organisation operating at a higher scale needs bigger plant, more space, etc., and, therefore, requires more fixed capital as compared to a small organisation.
(iii) Choice of techniques : A capital-intensive organisation requires higher investment in plant and machinery. So, requirement of fixed capital would be higher. On the contrary, labour-intensive organisation requires less investment in fixed assets. So, their fixed capital requirement is lower.
(iv) Technology upgradation: In certain industries, assets become obsolete very soon, e.g., computers. So, their replacement also become due faster. Hence, higher fixed capital will be require to purchased such assets.
(v) Financing alternatives: When an asset is taken on lease, the firm pays lease rent and uses it. So, fixed capital requirements is low since the firm can avoid huge sums required to purchase it. On the contrary, if the asset is purchased, then fixed capital requirements will be more.
(vi) Diversification: A firm may choose to diversity its operations when it has growth prospects, e.g., a textile company is diversifying and starting a cement manufacturing plant. With diversification, investment in fixed assets will increase. So, the fixed capital requirement also increases.