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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Article
How to Evaluate Human Capital?
Author(s)
Franko Milost
Full-Text PDF
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DOI:10.17265/1537-1506/2012.09.007
Affiliation(s)
Franko Milost, Ph.D., Associate Professor of accounting, Faculty of Management, University of Primorska.
ABSTRACT
A company is usually founded by individuals striving to achieve their own or broader goals. Goal achievement related to a company’s operations is called business or the business process. Human capital (man’s work, employees) is an important element of the business process, however its value is not disclosed on the assets side of the classical balance sheet. In order to shown assets, human capital has to be evaluated. Evaluation can be made in monetary or non-monetary terms. Non-monetary models for evaluating human capital include organisational and behavioural variables. These variables are not expressed in monetary terms, however, based on changes in their quality, one can assume the increased or decreased value of human capital within the company. The value of non-monetary models should not be underestimated, however monetary models are of greater importance. In this article, the most significant non-monetary and monetary models of human capital evaluation are discussed. Among non-monetary models the Michigan, Flamholz, and Ogan models are discussed. Among monetary models the replacement costs model, the opportunity costs model, the discounted wages and salaries model, and originally created dynamic model are discussed. A descriptive approach is used to identify the basic characteristics of existing models for evaluating human capital. According to these findings a different approach is taken in developing an original model. Dynamic model can efficiently overcome most of the practical problems and can be used as an appropriate estimator of human capital value expressed in monetary terms. The research limitations are that the dynamic model has not been sufficiently verified in practice. The model could prove to be directly applicable in those enterprises that would like to define the value of their human capital.
KEYWORDS
human resource accounting, human capital, financial statements, models of human capital evaluation
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