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Intangible assets can make up a huge fraction of a company’s market valuation.
So how much of that market valuation is real? Who knows? We have no accounting system that captures all the hidden component values—brand, human capital, partnerships, intellectual property—embedded within the total market valuation of a company. In fact, our current system of financial measurement has become increasingly disconnected from what appears to be truly valuable. And intangible assets may represent as much as half the value of the entire U.S. economy—more than a trillion dollars!
We urgently need more precise metrics for intangible assets, but even after a decade of research, intellectual capital has yet to be adequately measured. Even intangible assets that seem relatively straightforward to assess—say, the value of a company's computer infrastructure—are complicated by a host of other considerations, such as the extent of integration, usage, and systems compatibility.
Intangible Asset Value Drivers
What are the key intangible assets that create value in the modern corporation?
Historically, most intangible asset measurements have been top-down: Investors theorize a contributing factor and then try to figure out how to measure it. Unfortunately, this doesn’t help business executives make proactive decisions on how to manage their portfolios of intellectual assets.
Iknow is helping to pioneer a different approach. We analyzed numerous intangible asset categories at S&P 500 companies. Using advanced statistical techniques, we determined the ability of each value-driver category to explain market values over and above the amount explained by traditional accounting measures. Next, we examined a wide variety of intangible asset categories, which enabled us to identify the factors that are significant in creating value. Then we weighted the categories according to their importance in explaining market values.
Here’s what our research found about intangible value drivers in the durable manufacturing sector (in rank order):
Next Steps
What do these findings mean? For business managers, this research provides a set of levers that, if effectively applied, can improve both corporate performance and market valuation. For investors, it offers a powerful new way to evaluate how a company is creating value for its shareholders.
Iknow is developing and refining the methodology for helping quantify the value of intangible assets. Look for more here later this year!
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Contact us today and let Iknow create knowledge-based competitive advantage for you!
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