Analysis of Six Capitals and Their Impact on Organisations

The provided study delves into the importance of the six capitals for organisations, including financial, manufactured, intellectual, social relationship, and natural capital. It examines how these capitals are essential for improving market value, increasing profits, and enhancing overall capital employed in businesses. The analysis highlights the significance of utilising these capitals to boost business performance and profitability.

ADVANCED FINANCIAL
REPORTING
Table of Contents
INTRODUCTION:..........................................................................................................................3
Three core capitals needed for JB HI-FI business model...............................................…..4
Impact of three capital in increasing or decreasing the capital.............................................5
Three types of capital helps in creating value.......................................................................6
Integrated reporting improves Financial reporting ............................................................7
REFERENCES................................................................................................................................8

INTRODUCTION:
This study pertains the description regarding the Advanced Financial Reporting. also
includes the analyses of International Integrated framework(IIRF) which is the business model
and involves six capitals(Financial, Manufactured, Intellectual, Human, Social and Relational,
Natural Capital). Although, the study based on the analysation of financial statements and
reporting of JB Hi-FI Limited and analysation is made on the basis of last three years.
International Integrated Reporting Framework (IIRF) acts as the guideline for company financial
Reporting. Because the business model of JB HI-FI Limited is based on the Business model
framed by International Integrated reporting framework (Acharya, and Ryan 2016).
Identifying the issues regarding the types of capital required and concepts by JB HI FI
Ltd.
Issues regarding the concepts of accounting
Business model of JB HI FI Ltd.
The company JB HI-FI Limited is an Australian company and it operates its business through
three segments at different places JB HI-FI Australia, JB HI-FI New Zealand and the Good
Guys. Mainly the company produces the electronic goods like televisions, computers, cameras
and other telecommunications products such as CD's, DVD's etc. the financial reporting of JB
HIFI Limited is based on the business model of (IIRC) reporting framework. International
integrated Reporting helpful in improving the quality of information regarding the financial
capital and statements of JB HI-FI Limited and which is to be provided to its users both internal
and external users. Moreover the JB HI-FI Limited recognises the the importance of governance,
Environment and social matters which are combined in an economy.
Materiality: The materiality concepts states that organisation must disclose everything
that is important to the report audience, the organisation may disregard the trivial matters, but it
is mandatory for them to disclose the important material facts about the organisation. Although
the JB HIFI must disclose the relevant information about the organisations to its internal and
external users.(Arnold, 2012)
Integrated reporting: IR means the process of communicating the the periodic
integrated report, about the creation of value overtime. Integrated report is comprises with the

organisation's strategies, governance, performance and prospects lead to the creation of value
over the short, medium and long period of time. (Ball, Jayaraman and Shivakumar, 2012)Overall
it means company's integrated presentation of organisation's performance in terms of financial
and other relevant information.
Issues regarding the requirement of capitals and its types.
Three core capitals needed for JB HI-FI business model
Financial capital: It is most crucial capital for JJB HI-FI Ltd. or for any other
organisation as it is essential to have funds held with the organisation to perform daily activities
and to run business activities continuously.
Arguments:
 In case, If there is the lack of financial capital then it is impossible to start and to run the
business.
 In order to meet daily expenses of production and continuing business activities is crucial
to held funds with business.
Human capital: The second most priority deserved capital is human capital for JB HI-FI
Ltd as if the human capital the workforce is essential to complete the daily jobs of the
organisation.
Arguments:
 for accounting purpose the manpower is needed hence all the activities of the
organisation needs the workforce.
 Human capital pertains skilled and knowledgable group of persons and in order to take
decisions like operating , financing and investing it is essential to have the skilled group
of people in organisation.
Natural capital: Third most crucial capital must be held with the JB HI-FI Ltd because it
includes all the natural resources like water (the most precious thing needed by every one), land
(needed for business premises and for manufacturing), forests (woods and other natural things)
these all things needed by the organisation to run the business continuously.
Arguments:
 As water is needed by employees working in the organisation and land and minerals are
needed to perform the other business activities.

 As the business of JB HIFI is related with the production of Electronic goods hence so
that is why the natural resource water is the essential requirement for its R&D
department.
From the above three capital for example (according to the CPA integrated report), there
is lack of workforce in JBHIFI ltd. The organisation requires the more employees or more human
capital in order to manage their workings so, for this the organisation should recruit more
employees according to needs of different department of the organisation.
Impact of three capital in increasing or decreasing the capital
Financial Capital:
Financial capital is an economic resource which measured in terms of money used by the
businesses and entrepreneurs, to buy the products or to provide services. It will be important for
the JB Hi Fi also, as company produce electronic goods so to buy the raw material as an input it
needs fund, so the input raw material can be transform as output which called final goods.
(Macve,2015).
Strength: The strength of financial capital, it must be held with the business in order to
complete the business activities and to achieve it desired goals.
Weakness: The main weak point of financial capital is deciding its source, like from
issue of shares(It requires very lengthy procedure and costs), from financial institution(Loan
from financial institution provided at high interest rates and by lengthy documentary process),
from issue of debenture and bond(Results in increment of obligations).
Human Capital:
Human capital is the knowledge, habits, personal attribute and creativity of the
employees of companies. Human capital plays a vital role to transform the input into output. The
increase and decrease of human capital is depend upon the demand of JB Hi Fi product in
market. The more demand will create need of more employees similarly vice versa.
Strength: the main strength of JB HI FI or any other company is its manpower or human
capital employed in business, as without the work force it is impossible to perform all business
activities and events.
Weakness: the weak point of human capital of an organisation is that its compensation
and services facilitates by the organisations involves high costs and but it is essential also. And it
is not easy to recruit the skilled workforce for the organisation.

Natural Capital:
Natural capital is stock of natural resources which includes land, water,air and soils etc.
These resources plays an important role in industries to manufacture the goods. To produce
goods company needs a land, so it helps in transforming the raw material input as a final goods
output.(Francis, 2013).
Strength: The natural capital can help the company in creating the value as if company
using ecosystem resources than over all cost of production will be less and revenues will be more
Weakness: To produce the goods if JB Hi Fi needs the more natural resources than it
affects the environment.
Three types of capital helps in creating value
Financial Capital: It is the most precious capital for JB HI-FI Ltd helps the organisation
in creating value or increasing the goodwill, the financially sound companies increases goodwill
by supporting the general public in critical conditions like in case of natural disasters or
calamities etc. moreover, financial capital is needed to compensate the employees working for
the organisation because with workforce it is impossible to run the organisation and achieve it
goals. The increase and decrease of financial capital depend on the production of the products, as
if company is producing more and selling more than it will maximise the profit of the company
thus, it increases the goodwill or the market value of the organisation. (Pelger, 2016)
It must be argued that, the main issue regarding the allocation of financial capital is to
decide the source of financial capital, by equity, by debenture, by loans from financial
institutions. It depends on the desire of the company that the company wants to allocate the funds
by issuance of new equity shares or by issue of debentures and by loans from financial
institution. From these sources the more benefited source of funds allocation is issuance of
equity shares as it is termed as risk free source of fund. The equity shareholders are treated as the
owner of the company so profit and losses fully belongs to them and enjoys the ownership rights.
Besides this, the the issue of debentures and loans from financial institution treated as liability of
the company which company has to refund after the stipulated period of time. Debentures are to
repaid by the company after the expiry of time may be 5 years or more than it, the debenture
holders gets interest periodically enjoys no ownership rights so that is why beneficial, as holders
doe not interfere in decision makings and other managerial tasks. Another source is loan from

financial institutions also kind of obligations for organisation as its risky source and the financial
institution charges high interest rates that affects the organisation's profit.
Manufactured capital: the second crucial capital must be held by the JB HI-FI Ltd is
manufactured capital in order to increase its market value. It refers the capital held by the
organisation for the purpose of construction or manufacturing some physical objects like road,
buildings means essential for the infrastructural development of the economy. Infrastructural
development depends on the companies and industries of the particular region. It depends on the
industries to build the buildings, outlets in market, to serve as better as possible to society. Thus,
society increases the market value of company. (Gordon, and Gallery, 2012)
It must be argued that, the main issue regarding the manufacturing capital allocation of
funds for the acquisition of the manufacturing capital such as plant and machinery, advanced
technology in production etc. Along with the financial capital the manufacturing capital is
essential to perform the business tasks like production, storage, business premises for business
internal functioning and meetings. Moreover, the plant and machinery, warehouses, factory
premises are essential in order to perform the operational activities of the business and to
effectively and efficiently utilise the allocated funds for the business operations.
Social relationship capital: social relationship capital is essential to increase the market
value of JB HI-FI Ltd as it pertains the relationships, trusts and willingness to engaged together
to work for a particular organisation and helps the organisation in achieving the desired goals.
Not only this social relationship capital pertains relationship of organisation with the society
means organisation increases development without damaging the environment which influences
the interest of general public from the organisation (Weil and Schipper2012).
It must be argued that , the main issue regarding the social relationship capital is that the
company do not realise the company's social responsibilities regarding the society. As the
performing of social responsibility needs extra amounts and public support but, performing the
social responsibility accounting is helpful in creating value but requires the time and cost a lot.
The social capital is essential in in developing the goodwill of the organisation. Moreover from
the societal view it helps in improving the living standards of the society also helpful in
situations of disasters and destruction by natural calamities as social support provided by the well
developed organisation to the public, these all roles of organisation regarding the society helps in
establishing the brand name across the other competitive businesses and throughout the world.

Integrated reporting improves Financial reporting
Integrated reporting means presentation of financial as well as non financial performance
of the organisation in a combined single report. This helps in focusing on the issues regarding
non financial information along with financial information. It ensures the focuses on non
financial data show that with how critically company deals with the environmental, social and
governance parameters. Moreover it ensures the combined report of financial and non financial
data and depicts the overall performance of the organisation, thus it improves the financial
reporting system of the organisation (Rice and Weber2012).
CONCLUSION
The above study pertains the analyses of all six capitals (financial, manufactured,
intellectual, social relationship, natural) that how much these capitals are crucial for the
organisations and how they helps in improving the market value of the organisation and how
much these capitals are beneficial for the organisations business model. By the utilisation of
these capital how to increase the profits of the business and increases the overall capital
employed in the in the business by increasing the profit contribution to capital.

REFERENCES
Books and Journals:
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Laswad, F. and Redmayne, N. B., 2015. IPSAS or IFRS as the Framework for Public Sector
Financial Reporting? New Zealand Preparers’ Perspectives. Australian Accounting
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Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
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Shivakumar, L., 2012Gordon, I. and Gallery, N., 2012Laswad, F. and Redmayne, N. B.,
2015. Tool, Or Threat?. Routledge.
Pelger, C., 2016. Practices of standard-setting–An analysis of the IASB's and FASB's process of
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Rice, S. C. and Weber, D. P., 2012. How effective is internal control reporting under SOX 404?
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Accounting Research. 50(3). pp.811-843.
Weil, R. L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.