Below are clear examples of the Six Capitals, how they inter-relate, and how value is created (or destroyed) — exactly the way examiners expect.
🌐 The Six Capitals – Practical Examples + Linkages
1️⃣ Financial Capital
What it is:
Funds available to an organization.
Example:
Equity, retained earnings, bank loans, cash flows.
Inter-relation:
- Used to buy manufactured capital (machines)
- Invested in human capital (training)
- Spent on natural capital protection (pollution control)
Value creation impact: ✔ Efficient use → higher ROE, stability
❌ Poor allocation → losses, liquidity risk
2️⃣ Manufactured Capital
What it is:
Physical assets used in production.
Example:
Factory, plant & machinery, IT systems, warehouses.
Inter-relation:
- Financed by financial capital
- Operated by human capital
- Uses natural capital (energy, water)
Value creation impact: ✔ Modern, efficient assets → cost reduction, scalability
❌ Obsolete assets → higher costs, lower competitiveness
3️⃣ Human Capital
What it is:
People’s skills, experience, motivation.
Example:
Engineers, accountants, management expertise, employee training.
Inter-relation:
- Converts manufactured capital into output
- Builds intellectual capital through innovation
- Influences social capital via ethical behavior
Value creation impact: ✔ Skilled workforce → innovation, productivity
❌ High attrition → knowledge loss, lower value
4️⃣ Intellectual Capital
What it is:
Knowledge-based intangibles.
Example:
Patents, proprietary software, brand, processes, ERP systems.
Inter-relation:
- Created by human capital
- Enhances returns on manufactured capital
- Strengthens social & relationship capital (brand trust)
Value creation impact: ✔ Strong IP → competitive advantage
❌ Weak systems → inefficiency, imitation by rivals
5️⃣ Social & Relationship Capital
What it is:
Relationships and trust with stakeholders.
Example:
Customer loyalty, supplier relationships, government goodwill, CSR reputation.
Inter-relation:
- Built by ethical human capital
- Protects access to financial capital
- Supports license to operate using natural capital
Value creation impact: ✔ Strong trust → repeat business, regulatory support
❌ Poor reputation → boycotts, penalties
6️⃣ Natural Capital
What it is:
Environmental resources used or affected.
Example:
Water, land, minerals, energy, air quality.
Inter-relation:
- Used by manufactured capital
- Protected by financial capital investment
- Impacts social capital (community acceptance)
Value creation impact: ✔ Sustainable use → long-term viability
❌ Over-exploitation → fines, shutdowns, value erosion
🔁 How Capitals Work Together (Exam Gold Point ⭐)
Value creation is NOT from one capital alone.
It happens through trade-offs, synergies, and transformations among capitals.
📌 Simple Integrated Example (Case-based ready):
A company:
- Invests financial capital in
- Advanced manufactured capital
- Trains employees (human capital)
- Develops efficient processes (intellectual capital)
- Builds trust with customers & regulators (social capital)
- Reduces emissions (natural capital)
➡ Result: Sustainable long-term value creation
⚠️ Value Creation vs Value Destruction (Tricky Exam Angle)
| Decision | Impact |
|---|---|
| Cutting training costs | Short-term financial gain ❌ long-term human & intellectual capital loss |
| Ignoring pollution | Higher profits now ❌ destroys natural & social capital |
| Investing in R&D | Short-term cost ✔ long-term intellectual & financial value |
🧠 One-Line CMA Exam Summary
Integrated Reporting explains how an organization uses and transforms the six capitals through its business model to create, preserve, or erode value over time.
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