THE REAL VALUE OF INTELLECTUAL CAPITAL AND HOW IT IS INCLUDED IN A Essay - 1

THE REAL VALUE OF INTELLECTUAL CAPITAL AND HOW IT IS INCLUDED IN A COMPANYS FINANCIAL STATEMENT - Essay Example The knowledge of an organization is what is at time referred to as the brain power; therefore, intelligent capital can be viewed as the intangible assets used by the company in the making of its services and products. Intellectual capital, therefore, can be assumed to be the fundamental aspects of the company’s profit and loss statements, as well as its balance sheets. As such, the value of a business is, therefore, comprised of its revenue generated through its intellectual talents, financial assets, intellectual assets, and physical assets (Barney, et al., 2001). Three elements of intellectual capital include: Human capital mainly comprises of the values provided by business employees through application of expertise and skills ‘know how’. This component of intellectual capital is not owned by a company, and therefore when an employee leaves the company, the human capital consequently decreases (Peloso, 2008). Human capital can, therefore, be used to measure how effective a company is using its people resources as a measure of innovation and creativity. Structural includes the supportive infrastructures, databases and processes of an organization that enables the human capital to function. Components of structural capital include buildings, processes, software and so on. Additionally, structural capital also includes things such as information system, proprietary databases, research and development infrastructure facilities and organization’s image. The diversity of structural capital demands that it is broken down into: process, innovation, and organization capital. Process capital includes procedures of programs and the techniques that implement and enhance the delivery of services and goods. Innovation capital includes intangible assets and intellectual properties of the corporation. Organizational capital, on the other hand