consultants havespecial qualities; thedifference is
relative.- Excess returnmodels. We can attribute all of the
excessreturnsearnedbyafirmtoitshumancapital,
inwhichcasethedifferencebetweenestimatedvalue
andcapitalinvestedbecomesameasureofthevalue
of human capital. - Relative valuation models. We can compare the
market multiplesatwhich companies withsuperior
humancapitalinvestmentstraderelativetofirmswith
more average workforces.
Withalloftheseapproaches,wewouldaddanoteofcaution.
Unlikebrandname,whichisownedbyacompany,human
capitalisavailableonly forrent.Inotherwords, itwillbe
very difficult to keep skilled consultants or traders from
movingtoacompetingfirmattherightprice;considerhow
often skilled traders on Wall Street move from one
investmentbanktoanother.Putinexcessreturnsterms,itis
conceivablethattheentireexcessreturnsfromhumancapital
mayaccruetothepeoplepossessingitratherthantothefirm
that hires them.
Goodwill: The Nonasset
Itmayseemsurprisingthatwehavepaidlittleattentiontothe
mostcommonlyreportedintangibleassetonbalancesheets,
which is goodwill. Goodwill is not an asset but a plug
variable.Notethatitshowsuponlyafteracquisitionsandis
designedtocapturethedifferencebetweenwhatispaidfora
targetcompanyandthebookvalueofitsassets,thusallowing
the balance sheet to still balance after the acquisition.