Human Capital

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on January 04, 2023

Define Human Capital in Simple Terms

Human capital refers to the economic value of an employee's skills and experience. This counts things like education, training, intelligence, health, and even qualities like loyalty and punctuality that offer some value to an employer.

Human capital is considered an intangible asset, and thus it is not listed on a company's balance sheet; however, it is perceived to have a real relationship with productivity and profitability.

What Does Human Capital Mean in Finance?

The concept of human capital recognizes that not all labor is equal in value; however, employers can increase their human capital through things like training programs and education.

Because human capital is linked to productivity, the more a company invests in its employees, the more profitable they will be.

Because increased productivity also correlates with economic growth, many consider investing in human capital to be a prime way to increase economic prosperity.

Cost of Human Capital

Like any asset, human capital is subject to depreciation over time.

The most common ways for human capital to depreciate in value are through unemployment, injury, mental decline, or the inability to keep pace with innovation.

Depreciation of human capital is often measured through wages or the ability to stay in the workforce.

 

Human Capital Definition FAQs

What is Human Capital?

Human capital refers to the economic value of an employee’s skills and experience.

What is included in the calculation of Human Capital?

Human capital counts things like education, training, intelligence, health, and even qualities like loyalty and punctuality that offer some value to an employer.

Is Human Capital listed on a balance sheet?

Human capital is considered an intangible asset and thus it is not listed on a company’s balance sheet. However, it is perceived to have a real relationship with productivity and profitability.

Why do investors look at a company's Human Capital metric?

Because human capital is linked to productivity, the more a company invests in its employees, the more profitable they will be. Increased productivity also correlates with economic growth. Many consider investing in human capital to be a prime way to increase economic prosperity.

Can Human Capital depreciate?

Like any asset, human capital is subject to depreciation over time. The most common ways for human capital to depreciate in value are through unemployment, injury, mental decline, or the inability to keep pace with innovation.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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