Answer to Question #49609 in Economics of Enterprise for Christoph

Question

Is an insurance company more concerned about fixed capital or working capital? Does this make it easier or harder to finance rapid growth?

Answer 1

Fixed-capital investments are typically depreciated on the company's accounting statements over a long period of time, up to 20 years or more. Examples include factories, office buildings, computer servers, insurance policies, legal contracts and manufacturing equipment – anything that is not continually purchased in the course of production of a good or service. Fixed-capital investments typically don't depreciate in the even way that is shown on income statements. Some devalue quite quickly, while others have nearly infinite "usable" lives. But the depreciation method allows investors to see a rough estimate of how much value fixed-capital investments are contributing to the current performance of the company.