Understanding the difference between Human Capital vs Physical Capital

Capital is any asset that is utilized for production reasons. Capital can take many forms and is normally categorized into two types: physical and human. Physical capital is termed as a tangible asset that is used in the production of goods and services like machinery, construction or equipment. Human capital is an intangible asset that is linked with the educational qualification, knowledge and experience, traits, and skills of an employee. 

For running a business with efficiency, both human and physical capital are important aspects for allowing a business to make a profit. They also differ a lot in their nature as well. 

Physical Capital 

Physical Capital consists of human-made goods that help a business in their production process. Cash, real estate, resources and inventory of a business are some relative examples of physical capital. 

A physical asset is segmented on the balance sheet on the basis of its solvency. Physical capital is normally listen on the balance sheet on the order of their solvency. Physical capital is also listed on the balance sheet on its book value. This means its historical cost that is less decreasing then the depreciated value. This value is quite different from market value which is the price at which an asset can sold for in the market. 

Human Capital

Human capital can be considered as a worker’s job expertise and skills. It incorporates aspects like education, skills, work experience and other traits like motivated for job, being punctual.

Human capital is something that isn’t physically present in is mostly in a written documental form. Just like other intangible assets, it isn’t depicted on the balance sheet. 

The intangible assets like intellectual copyrights, brands, licenses and goodwill’s are included in the human capital. Goodwill is when a company buys or acquires and the purchase cost is more than the physical assets that are bought. 

Physical Capital vs Human Capital 

Physical and human capital are both important for continuing the operations of a business, and its efficiency in generating profit. Both assist in the process through which a product or service is created and catered. 

Intangible vs Tangible 

Physical capital comprises of tangible, goods that are made from human like machinery, buildings, office, warehouse, vehicles and computers. These are physical objects that can be consumed, touched and they also lose their monetary value over time. 

Possession 

Physical capital is normally bought by a firm that is utilized by the company upon its will. Human capital has an acquisition cost, but the business doesn’t have that much control over it. Employees that have a specialized skillset, education, and qualification have the leverage of leaving a company whenever they want. Therefore, they aren’t included in the physical capital. Physical capital is defined as something a business has full control over.