Companies need capital to run their business and basically, there are two types of capital while one is physical capital and other is human capital. Physical capital refers to that capital which is tangible and can be seen by us; therefore they assist the company in the production process. Hence furniture, fixtures, plant, machinery, building are some of the examples of physical capital, in order to understand more about this concept one should look at the advantages and disadvantages of physical capital –
Advantages of Physical Capital
Permanency
The first and foremost advantage of this capital is the permanency factor because unlike human capital which does not remain with the company forever this capital can remain forever with the company. Hence a company can use factory premises or office building for 100 years without worrying or for that matter if machinery is maintained properly it can be used for a long time by the company.
No need for Training
Another benefit of this capital is that there is no need for training because these assets are to be used by human capital who needs training for using these assets. In simple words, once the company has purchased the assets apart from initial capital investment and regular maintenance charges a company does not have to spend anything.
Emotionless
Another benefit of this capital that they do not have any emotions and when there are no emotions than the problem of ego, jealousy and other such problems does not arise which is the case with human capital. In simple words, the fact that physical capital does not have heart and mind makes them easy to manage as opposed to human capital which has a heart as well as mind.
Disadvantages of Physical Capital
Wear and Tear
The biggest disadvantage of this capital is that they are affected by normal wear and tear which limits their use and that is the reason why the majority of machinery and other fixed assets are to be replaced by the company after few years of their use.
Affected by Technology and Current trends
Another problem with this capital is that this capital is affected by a change in technology as well as current trends and sometimes they become obsolete within a few months of purchase. In simple words unlike human capital which if trained properly will work for a company for years but the same thing cannot be said for physical capital which depending on technology and trends can become obsolete and no one can predict the time for which company can use these assets in the business.
Rigid
Physical capital is static or rigid and it is difficult to modify them unlike human capital which can be modified according to requirements of the company, hence, for example, a human worker can work on multiple locations and do multiple tasks but as far as physical assets like machinery, building, furniture are concerned they can be used for one or two tasks only and not for multiple tasks.
As one can see from the above that physical capital has advantages as well as disadvantages but no company can survive without this capital but a company can ensure that it puts this capital to maximum use and avoid its limitations so that company can benefit the most from physical capital.