Why human capital is the driver of Fortune 500 success

$50m! $500m! $5bn!

Company valuations are bandied around all the time. But where do these numbers come from, and how have they changed? It turns out the source of Fortune 500 company value has completely flipped around.

First, a disclaimer. I paid very little attention in business studies classes at school (was too busy trying to start my own business), so apologies to my financial expert followers.

A quick search tells me that company value goes something like this:

“The assets a business owns, including all equipment and inventory, less any debts or liabilities.”

Focusing on the assets part of the equation, there are basically two categories: Tangibles and Intangibles.

Tangibles means things like capital investments and physical assets. A lot of people like these. Solid. Secure. You know what you’re getting.

Intangibles relates to all that fluffy stuff - intellectual property, customer relationships, human capital.

How much of the Fortune 500’s value today is Tangibles vs. Intangibles?

As someone who’s more interested in humans than gold bullion I was hoping the intangibles number would be decent - maybe 30%?

Alan Murray, editor at Fortune magazine says their research shows the value in Fortune 500 companies now held in intangibles is 85%.

The growth of the top 500 companies (and plenty more besides them) just wouldn’t happen without people having agency to be creative, work together, and bring ideas to life.

And he sees this as part of a trend that’s going to continue.

Even if some people don’t want you to believe it, the value of people and their ideas is increasingly important in the modern business world.

The question is - how do you create the conditions for them to flourish?