Value of Human Capital it

Value of Human Capital

It has been said: "Whilst accountants around the world continue to ignore the value of human capital in measuring business assets and the management of resources, ratio analysis and the interpretation of financial statements is bound to be fraught with difficulties and has little real meaning." The objective of this work is to state either an agreement or disagreement with this statement based on research, readings and the experience of the writer of this work.

HUMAN CAPITAL

Human capital is defined in the work of Navin Bhutoria entitled: "Valuation of Human Capital" as "the knowledge that individuals acquire during their life and use to produce goods, services, or ideas in market or non-market circumstances." (nd) Bhutoria points out that the "fundamental source of wealth creation - human capital - is seriously under managed in most organizations. That is because most organizations' systems of measurement, shaped in part by accounting and reporting requirements, are still unduly influenced by measurement concepts dating back to the industrial era when physical capital was the primary source of wealth creation." (Bhutoria, nd) Bhutoria states that these methods and their use as systems of measurement are."..roughly analogous to steering a car with the rear view mirror." (nd)

II. THREE ERAS of ECONOMIC HISTORY

Bhutoria states that three eras of economic history have existed which include: (1) the agrarian era; (2) the industrial era; and (3) the knowledge era. (nd) the industrial era was defined by the primary source of wealth being machinery and natural resources however, the knowledge era has as its' primary source of wealth that of human capital termed to be "the embodiment of productive capacity within people." (Bhutoria, nd)

II. STATISTICS RELATED to HUMAN CAPITAL STRATEGIES

The work of Bradley W. Hall entitled: 'The New Human Capital Strategy: Improving the Value of Your Most Important Investment - Year After Year" (2008) states that the findings in 2006 by the University of Southern California's (USC)'s Center for Effective Organization is that merely nine percent "of HR leaders report that their company is effective or very effective in connected human capital practices to organizational performance. This leaves 91% who do not believe that their human capital practices effectively connect with organizational performance..." (Hall, 2008)

III. SUMMARY & CONCLUSION