Understanding: Physical Capital
What does anyone understand from the word physical capital, in simple words, it is a thing which human beings have created such as money, buildings, machines, and automobiles they would come under this category all of this is used to increase the production process.
What is Physical Capital
Along with physical capital, there is land and natural resources, along with human capital all these factors are interlinked, and they in turn help to increase the GDP of that economy or country. Using all these resources will help us to gauge the price of the end product. For any manufacturing unit this all these factors play a major role on much the factory is producing and the cost of the end product, how is the demand in the market for this product. Accordingly, the price of the product is decided also this, in turn, would be deciding factor for how the factory is performing.
All of these are physical assets on the balance sheet the physical capital is an integral part of the companies valuation. Frankly speaking, it is not possible to judge the valuation of these assets. Let us give you an example the headquarter building is part of physical capital but some of them think only about the valuation of the land. This is a topic that would require a lot of debate and similarly, they have reservations on other assets too. Now we will take the case of machines and equipment they are also fixed assets that would be productive for a while which is a question which no one can answer. The physical capital is not destroyed during any process of production we can say its value goes on decreasing day-by-day. Here judging the value of that asset is very difficult. For example, the company has excavators of brand JCB, the value of the new JCB in the market is around 10lac. But how would you determine the price of that JCB excavator in the next 5 years that is an impossible task? So the value of the fixed asset is will differ from its market value. Another challenge that is faced is that if there is an urgent need for money then selling this asset becomes a very tedious job and it makes takes some time before that asset is being sold out. Also, machines and equipment which are there are for a specific purpose only so it becomes more difficult to sell that thing in the market. We will consider a beverage-making company in that machine is making bottles of specific design and size only. Now if you want to sell that thing in a market it would be an uphill task also the money involved will depend on the market condition so as multiple things are affecting it, so maintaining the physical asset is no easy task.
Physical Captial and Land and Natural Resources
Land and natural resources are also a very important part that appears as raw material in the production process. Here is make include the land which is owned by the company, also any water bodies owned by the company. In this case both solid assets for the company. But the physical asset is man-made and other assets are natural. We will take an example of a building which a physical asset but the real value is of the location that is of the land. If the land is located in a remote area then the value of it would petty, but if it located in a prime area then it would give handsome returns.
Other than physical assets some other assets are Human Capital, Neoclassical Economics, Asset Valuation, Tangible Assets.
Conclusion:
This article would help to garner more knowledge about physical assets. Liquidation of assets is something that needs to be taken care of as it is not so easy to sell the physical asset and get the amount that is quoted in the balance sheets. Running a factory is not easy as it seems from the outside there are various roadblocks for the businessman they have to run business wisely to make it profitable as many families are depending upon their decision. They have to optimal use of the asset which they possess so that they can get maximum profit from them. Also, that chain has to be maintained on a regular basis so it becomes a profit-making unit.