The purpose of this study is to examine the effect of intellectual capital on its component of firm’s financial performance and market valuation. It also draws a comparison between service and manufacturing sector. The study applies panel data analysis for examining the effect of IC on financial performance and a primary survey is conducted to understand the impact of components of IC namely, human capital, structural capital and relational capital on firms’ organisational performance. Understanding the components of IC as the vital drivers of organisational effectiveness helps a company to derive the full value from them. The importance of various aspects of IC can be extracted from this research will provide opportunity for strategic approaches and reveals the correct path for efficient and suitable management of resource. This study offers a critical review of the impact of IC on firm’s performance and the components which will have more impact on organisational performance.