ProductiveTo be considered fixed capital an asset must be productive. This is considered in the context of your business. For example, 500 acres of land in the countryside may be productive to a farm but irrelevant to the business of a web design firm. If a web design firm bought 500 acres of land it might be viewed as an investment that acts as a store of wealth as opposed to productive capital.
LandLand can be considered the capital of a business where it is relevant to value creation. Land isn't included in some definitions of capital because it naturally exists and isn't created value. For example, land is excluded from calculations of the fixed capital of nations.
Land ImprovementsLand improvements include anything that increases the value of a property except for buildings. This includes small structures, roads, landscaping and minor water infrastructure. These are separated from land because land generally doesn't go down in value whereas land improvements can be deprecated.
Property, Plant & EquipmentProperty, plant and equipment, or PP&E, is a common accounting term for fixed capital. This includes land, buildings, machines, computers, furniture, fixtures and vehicles that are used to produce value. In order to be considered PP&E an asset can't be easily turned into cash.
Tangible AssetsThe concept of fixed capital typically only includes physical things because these are easier to value than intangible things. For example, if you work for a month building a barn you can consider this fixed capital but if you work for a month developing software this isn't considered fixed capital. This definition is increasingly problematic as a growing portion of capital is intangible in developed economies.
Long Term AssetsFixed capital only includes property that is used on an ongoing basis as opposed to supplies and inventory that are turned over quickly. The latter is known as circulating capital. For example, a computer at an electronics store that is available for sale isn't fixed capital but becomes fixed capital when purchased by a business that will use it.
Leases & RentFixed capital isn't necessarily owned and can be leased and rented. For example, an airline that leases $40 billion in aircraft is effectively employing $40 billion in fixed capital even if they don't own it.
InfrastructureAt the level of a nation, hard infrastructure such as a canal, communication network or public park can be considered fixed capital.
ToolsPhysical tools such as a hammer are technically fixed capital but nations usually set a minimum cost to be considered capital. In this case, inexpensive capital is viewed as a supply that can be immediately expensed.
|Overview: Fixed Capital|
A productive tangible asset with a useful lifespan of more than a year.