Human Capital, unfortunately, often is an underestimated asset. There are many factors that can help us understand why analysts in Wall Street tend to over-look human capital when valuating a firm, however one reason of most value may be how Human Capital is an intangible asset. Human Capital cannot be bought nor can it be sold. Analysts struggle with such fact and hence lose interest in accounting for Human Capital when evaluating a firm.
Another factor of equal importance lies in how analysts do not see the value of Human Capital. This is due to a couple of reasons, one being that they themselves work in an industry that has yet to see functional HR departments that support Human Capital correctly. Another is despite the highly qualified Wall Street analysts, their experience is lacking in areas that deal with Human Capital, such as HR.
What separates good companies from great companies is the work force. Although intangible, it does not depreciate in value. Human Capital in fact will appreciate in value as firms start investing in its work force, specifically in training and development programs for its employees. Analysts of Wall Street must start paying attention to Human Capital of firms when valuating a firm. They need to realize that, like any other capital asset, an investment in Human Capital will yield a return. This is also the reason why analysts should not treat Human Capital as expenditure, rather they should treat it as an investment and hence they should be able to quickly realize that Human Capital really is a company’s biggest