Thesis Corporate Excellence The premise that intangible assets have to be taken into account for any strategic decision and the numerous attempts to evaluate intangibles or come up with an appropriate measurement tool led to the development of this thesis which aims to become a point of reference for further research on evaluation of intangible assets. This manual enables companies to start their work on intangibles and choose the most appropriate method for their evaluation. It pays particular attention to the analysis and comparison of methodological principles of evaluation of intangible assets and tries to overcome the barriers caused by lack of regulations and consensus in such areas as the definition, the classification and even the role of intangible assets.

1. Thesis
Strategy Documents
T01 / 2011
Cristina Álvarez Villanueva
Metrics
Towards a new model for
evaluation of intangibles 1
Intangible assets are among the key factors of success for any company, both at
present and in future.
Introduction O1: despite the existence of many evaluation
This thesis is based on the assumption that methods, none of them is all-inclusive, or valid on
intangible assets have to be taken into account in its own without adjustments in any environment.
all instances of the decision-making process and With this hypothesis in mind, we attempt to prove
draws on numerous efforts to evaluate them and that there is no adequate evaluation method that
find an accurate measurement tool2. The thesis aims could enable successful management of intangible
to list available references, which may be used to assets and that the term all-inclusive does not
find all available information about evaluation of correspond to reality.
intangible assets3. Finally, it is a reference material,
which would enable companies to increase their H2: Despite a notable evolution in recognition of
awareness of intangible assets and to choose the intangible assets, they are not effectively reported
most appropriate method for their evaluation. for proper management and incorporation in
financial statements, thus impeding standardization
This is an in-depth research, which analyses and of their evaluation
compares major methodologies of evaluating
intangible assets and attempts to overcome the O2: communication steps that have to be made in
barriers resulting from lack of standardization and order to improve the recognition and management
consensus in such areas as definition, classification of intangible assets.
and even importance.
O3: find out whether companies have good grasp of
Starting hypothesis 4 different methods for evaluation of intangibles.
H1: There is no universal method of valuing
intangible assets, which would hold for any This hypothesis aims to find out whether there is
company and any circumstances. a good communication system, which encourages
Document prepared by Corporate Excellence - Centre for Reputation Leadership, citing the doctoral thesis “Towards a new model for evaluation of intangibles” by Cristina
Álvarez Villanueva, Universitat Jaume I, Castellón.
1. The justification of this study is based on the lack of standards in this field – intangibles have been overlooked for a long time in Economics and Accounting -
2. The work titled The Systems of Evaluating the Intangibles and Their Relationship with Strategic Decision-Making in the Company. Current Situation (ÁlvarezVillanueva,
2007) lays the foundation for this research. The work is an introduction to the measurement of intangibles with an emphsis on strategic decisión-making in the business
environment.
3. Although there are many texts discussing intangible assets, there is still no manual which would cover the whole scope of intangible assets and relate them to the models
based on their characteristics.
4. The methodology used in this doctoral thesis is linear, developed in three main stages: 1) theoretical research (Contextual Framework and Theoretical Framework), which
analyses features of different intangible assets; 2) Field work (Empirical Framework), used to check the starting hypothesis and questions that arose in the course of the
research; 3) Findings and suggestions for further research (Conclusive Framework).

2. Towards a new evaluation of intangible assets and their incorporation due to the growth and industrialisation of the services
model for evaluation in the overall economic system of the organization, sector, the fact that production is no longer purely
of intangibles or whether this topic is explored only by large material, greater role of information and intangibles in
companies and only for short-term purposes. the corporate competitive ability and greater concern
for creating value for the stakeholders.
H3: On many occasions evaluation of intangible
assets is not performed because companies do Increasingly, newly emerging companies from the
not have a good grasp of all different evaluation very start focus on services and the fundamental
methods, and often it is not possible to involve importance of information. If in the past intangibles
an expert who would be able to provide represented around 50% of the market value, at the
professional advice. moment this figure increased to 80%6. This is due to
the new model of competition. However, there are
O4: investigate if there is a knowledge gap in the still many organisations that do not draw up reports
area of intangible assets and if a company needs to that would enable to evaluate their intangibles with
bring on board a person or a team who could be the help of indicators. The reasons for this may by
responsible for intangible assets. summed up in the following way:
O5: find out if due to this information gap, evaluation 1. Belief that only financial statements reflect the
of intangibles is seen more as something strange true value of the company.
than as something necessary for the company. 2. Fear that the indicators may reveal confidential
information about internal infrastructure, clients
O6: find out whether the communication effort or employees of the company.
performed by the company in the area of intangible 3. Lack of knowledge needed to analyse the
assets is sufficient. evaluation models.
4. Lack of experience needed to choose the
This hypothesis aims to investigate whether an right model.
information gap may be the reason why evaluation
of intangible assets is not fully effective and, Towards the definition of IA
consequently, the progress in management takes At present no universal definition of intangible
longer than it should. assets is adopted in the financial literature. However,
the analysis of different definitions may lead one to
identify their characteristics. Presented below are
CONTEXTUAL FRAMEWORK
the features associated with an intangible matter:
Evolution of intangible assets 1. Be identifiable, i.e. can be differentiated from
Introduction of intangible assets into the balance other assets.
sheet took place only in the 80s. Adam Smith, 2. Potential to generate profit, for without this an
known as the father of modern economics, believed object cannot be considered an asset.
that the source of wealth for any company resided 3. Control, a company should be able to control its
exclusively in production of material values. In intangible assets. Thanks to this control, assets
his opinion, productive work created tangible can be accounted for at a later stage.
products, which had value on the market, whereas
unproductive work led to creation of intangibles. The Economic and Business Dictionary edited by
Everything changed in 1912, when Schumpeter in Arthur Andersen (1997:340), suggests the following
his Theory of Economic Development suggested the definition
idea of intangible value in the economic system as
well as innovation and the view of intangible assets «Anything that does not have a physical presence
as fundamental elements for the development and and is not intended for sale. For example, intangible
the basis of a company. assets are industrial designs, goodwill, etc.»
From this moment on, many researchers have However, the above definition is not accepted
demonstrated the importance of intangible assets by empirical research. Based on her findings, the
and their contribution to creating value in a author recommends the following definition7
company by means of impacting both the internal
and the external structure.5 «All assets that are not physical or monetary,
but can be identified and controlled, can generate
Drawing on the findings of Bounfour (1998; 2003), one economic benefits in future and contribute to
can highlight the increasing importance of intangibles creation of value for a company.»
5. See table Evolution of Theoretical Knowledge about the Intangibles in the appendix. Source (Bounfour, 2005:6-7).
6. Measuring Intangible Equity (2002).
7. Although we use the terms Intellectual Capital and Intangible interchangeably to refer to the same concept, in reality Intellectual Capital (hereafter referred to as IC) may
be considered as a type of intangible assets.
Thesis 2

3. Towards a new If we break this definition down, the following The Spanish accounting tradition classifies
model for evaluation components may be identified: intangible assets as “inmovilizado inmaterial”.
of intangibles However, the name “activo intangible” as used by
1. Intangible character is established: non-physical IASB and FASB for many years, is still missing from
2. Compliance with the definition of an asset: the Spanish accounting framework.9
identifiable and controllable.
3. Accounting conditions are observed: non- In January 2005, the EU adopted a regulation on
monetary accounting norms with an objective to harmonise
4. Two fundamental characteristics are financial statements of companies, encouraging
demonstrated: ability to generate future transparency and accountability. All companies
benefits and create value. have to present their statements in accordance
5. The term “capacity” is avoided in order to not with the IFRS (International Financial Reporting
to focus exclusively on the human aspect and Standards). This may be a good occasion for
“intellectual capital” due to its different nature. introducing the definition of intangible assets into
the statements. However, even according to the
Classification of Intangible Assets new rules, intangible assets will be recognised only
In order to develop a good evaluation methodology, partially. Therefore, as long as intangible assets
one has to be familiar with the elements that are not recognised as such under the existing
are going to be measured, what forms them and accounting standards, their evaluation will be a
how they can be classified8. The great variety of hard task.
existing classifications of intangible assets point
to the lack of consensus, which makes evaluation The accounting treatment analysed in this study
of these assets very difficult. The consequences is structured in accordance with the classification
are clear: lack of standardization, and different suggested by Ramírez y Tejada10 (2009:175), later
indicators/evaluation results depending on the developed by Nevado y López (2002:18)11.
chosen method.
A) Identifiable intangible assets
Accounting Treatment of Identifiable intangible assets are those acquired by
Intangible Assets third parties, exchanged, those purchased or received
According to the general accounting rule, an asset as part of business. They may also be generated
is any resource controlled by the entity as a result internally, like R&D expense or software.
of past events and from which future economic
benefits are expected to flow to the entity. In order Assets presented in the first group may generate
to comply with the condition of “intangibility”, the future economic benefits, which are reflected in
asset has to be identifiable, controllable and able to their cost. Assets presented in the second group, on
generate future economic benefits. the contrary, do not have a specific acquisition cost
Intangible Assets
Identifiable Non-identifiable
Acquired from third parties Generated Acquired by another Generated internally
internally company
- Individually Acquired or external Internal goodwill
- As part of the business goodwill (Intellectual Capital)
- Other forms
- R&D expenses - Clientele
- Industrial Property - Localisation
- Intellectual Property - Organisational structure
- Administrative concessions - Prestige
- Right of disposal - Know-how
- IT applications - Human capital
- Franchise - Commercial channels
Visible intangible assets Invisible intangible
assets
8. Chapter 5 of the Thesis (Towards Evaluation of Intangibles) presents an overview of the most relevant classifications of intangible assets.
9. There is only one standard that contains conceptual definition of intangible assets, IAS 38: an “intangible asset” is an identifiable non-monetary asset without physical
substance (IAS 38, Definitions).
10. RAMÍREZ CÓRCOLES, Yolanda Y Ángel TEJADA PONCE (2009): “Activos intangibles identificables. ¿Se ha logrado alcanzar una convergencia internacional en su
tratamiento contable?” published in the Journal Estudios Financieros.Revista de Contabilidad y Tributación, Nº 310, Centro de Estudios Financieros, Madrid, pp 169-184
11. NEVADO PEÑA, Domingo y Víctor Raúl LÓPEZ RUIZ (2002): El Capital Intelectual: valoración y medición, Financial Times-Prentice Hall, Madrid
Thesis 3

4. Towards a new and therefore are associated with a high degree of is based on two dimensions16. On the one hand, it
model for evaluation uncertainty and risk. recognises the following aspects:
of intangibles - organisational level
This affects their measurement, because acquired - identified components
assets are easily measured (have a price), while
those generated internally need other evaluation On the other hand, the way that results are
methods, which may be highly subjective, and are demonstrated:
the object of this doctoral thesis. - monetary value
- non-monetary value
B) Non-identifiable intangible assets
The rest of intangible assets that comply with the Depending on the place in this grid, four types of
definition of an asset but cannot be separated or evaluation methods are identified:
identified, have a different accounting treatment.
They, in their turn, may be acquired by another 1. Direct Intellectual Capital Methods, DIC
company (external goodwill) or generated 2. Market Capitalization Methods, MCM
internally (internal goodwill, intellectual capital, 3. Return on Assets Methods, ROA
human capital, know-how, organisational capital, 4. Scorecard, SC
client capital, etc).
Regardless of the methodology, it is important that
the company is consistent in application of the
THEORETICAL FRAMEWORK
chosen method. It doesn’t make sense to change the
method frequently because that would not allow the
Evaluation methods company to have valid comparable results. One has
Business evaluation is key for business management, to keep in mind that every method has its advantages
for it demonstrates the continuity and potential of and disadvantages depending on the moment or the
the company. Unfortunately, due to a high degree circumstances in which the method is applied.
of subjectivity, it is difficult to find a method
which would allow one to conduct this evaluation. Financial methods (DIC, MCM and ROA) are
When we speak about the evaluation, we refer to based on the use of financial benchmarks that reflect
the economic and financial value of an intangible the value of the intellectual capital in the company.
asset. In other words, it refers to the monetary
value rather than its subjective value. They are useful in the situations of merger/purchase and
during market evaluations/comparisons, for they allow
Measurement of intangibles is essential for their one to evaluate the intellectual capital in monetary
adequate management. We are trying to evaluate terms. Moreover, by yielding a numerical results, these
them in order to assess the quality of management. methods enable one to compare companies of the
same industry, or assess mergers and acquisitions.
The methods of evaluation of intangibles are in fact
a simplification of reality and an approximation of Advantage: yield a numerical value, show how
the exact value12. However, these methods enable much intangible assets are worth
to identify a trend, which demonstrate whether
the company’s results are better or worse than in Disadvantage: confining the value of the asset to
the previous analysis. In this sense the system of a specific quantity may be superficial. At the same
evaluating intangibles may be compared to the time, they do not allow one to identify and measure
scales: it may never capture the exact value, but it different elements of the intellectual capital.
is important to know whether the value identified is
higher or lower than before13. Non-financial methods (SC) demonstrate the
relationship between the company’s current activities
Classification of the valuation methods and the capacity to generate benefits in future. These
There are different approaches to the classification methods offer a global vision of the strategy in the
of evaluation methods14. This thesis draws on the long run, minimising the uncertainty of the decision-
classification suggested by Sveiby15 (2007) which making process. Therefore, they deliver information
12. Many researchers agree that it will never be possible to measure the value of intangibles precisely, because in many cases the measurement has a subjective element
(commitment, customer satisfaction, loyalty…)
13. This perspective corresponds to the Principle of Uncertainty suggested by W. Heisenberg (1959).
14. Irene Pisón Fernández speaks about simple and compound methods; Castilla bases his classification on three criteria: the purpose of evaluation, what is being evaluated, how
to evaluate it; Salinas Fabbri uses two criteria: the purpose and the object of evaluation; Villacorta introduces four criteria: presentation of the results in the quantitative
or qualitative form, whether directo or indirect methods are used, whether indicators are used for the calculations and the purpose of the method: the model of control
and management, a theoretical model, or a model with a different purpose; Nevado y López, in their turn, simplify the classification saying that there are two major types:
conceptual models and global or individual models; Viedman suggests a completely different classification known as the Theory of Intellectual Capital; Finally, Levy y Duffey
base their classification on the result: quantitative methods, qualitative methods and other models (the ones that do not belong to any of the two groups).
15. SVEIBY, Karl-Erik (2007): Methods for Measuring Intangible Assets, [available on Internet at www.sveiby.com]
16. The choice is based on the fact that this classification draws on earlier works and has a logical and rational structure.
Thesis 4

5. Towards a new not captured by financial methods: information about business environment. Instead, they may generate
model for evaluation
of intangibles benefits that may be generated in future by activities large volumes of data that are hard to analyse and
that cannot be quantified. communicate without a necessary purely financial
perspective. On the other hand, the indicators
Advantage: they offer a snapshot of the situation used by these methods are not convenient for the
in the organisation, an immediate overview of the following reasons: a) it is difficult to separate the
general financial position, and where improvements indicators or to classify activities of the company in
are needed. These models usually complement terms of the indicators; b) in many cases they are not
financial schemes. It is a tool, which shows how connected; c) they are difficult to compare; d) they
intangible resources generate financial results. are subjective; e) there are too many indicators.
Disadvantage: highly individual character. They
depend on the situation in which they are applied Detailed Classification of IA
and therefore have to be adjusted to every company Evaluation Methods
individually. Because of that, it is difficult to draw The below table is based on the Methods for Measuring
comparisons. Besides, as they don’t yield an exact Intangible Assets by Sveiby and complemented by
numerical result, they are less favoured in the other relevant evaluation methods.17
Evaluation Methods for Intangible Assets18
Non-Monetary Monetary
Identified SC Methods - niversity of Western
U -DIC Methods
components - BSC Ontario Model - AFTF
- Business IQ/Topplinjen - Intelect Model - itación Ponderada
C
- Celimi - Intellectus Model de Patentes
- CIBC - MAGIC - DEC
- Danish Guidelines - Meritum - FiMIAM
- Holistic Accounts - NICI - HRCA
- IAM - ecommendations of
R - IAMS
- ICBS Tjänesteförbundet - nclusive Valuation
I
- IC-dVAL® - Skandia Navigator Methodology
- IC-IndexTM - Valoración y Gestión - Intellectual Asset Valuation
- IC-RatingTM - alue Chain
V - Technology Broker
- Knowlege Audit Cycle ScoreboardTM - he Value Explorer
T
- Dow Chemical Model ToolkitTM
- TVCTM
- VCI
Organisational MCM Methods
level - Balance General Invisible
- CFROI
- CVA
- FiMIAM
- IAMVTM
- Matriz de recursos
- MBV
- MVA
- Q de Tobin
ROA Methods
- rchitecture for Intangibles
A
(Human Capital)
- CFROI
- CIVTM
- CVA
- EVATM
- KCE
- Modelo Matemático
- MVA
- NOVA
- VAICTM
17. The document titled Overview and Classification of Existing Evaluation Methods for Intangible Assets presented in the Appendix
corresponds to Chapter 8 of the thesis and contains a guide to existing evaluation methods for intangible assets.
18. Methods highlighted with gray will be discussed in more detail in the next section. They were chosen base don the following criteria: 1) the most
important and recognised methods in each category according to many authors; and 2) methods that are innovative and clearly different from all others.
Thesis 5

6. Towards a new Method Characteristics Pros Cons
model for evaluation
of intangibles MCM - based on the market
- appropriate for demonstrating
- oes not provide information
d
capitalisation the economic value of the about the components of the
Intellectual Capital. Intellectual Capital
- appropriate for benchmarking
- purely economic focus
a
and comparisons. limits the perspective
ROA - based on return on
- ppropriate for benchmarking
a - oes not provide information
d
assets and comparisons about the components of the
- determines the economic
Intellectual Capital
value of the Intellectual - purely economic focus
a
Capital limits the perspective
- is based on traditional
accounting rules, and is
therefore easily understood
by accountants and finance
professionals
DIC - stimate the
e - nables evaluation of
e - easurements are individual
m
economic value of different components of the for each company
intangible assets by Intellectual Capital - ot appropriate for
n
identifying their - enables combining monetary
benchmarking or
components and non-monetary values comparisons
- a clear and easily
- he more components are
t
- ave to be used in
h understandable snapshot of analysed and the more values
conjunction with the the company’s intellectual are obtained, the harder it is
SC methods when capital to conduct the evaluation
standard indicators - measurements are based on
are defined events
- better representation of
cause-effect relationship
than in the case of financial
methods
SC - dentify the
i - uickly deliver the results
q - ensitive to the changes of
s
components of the which are easily understood the context
Intellectual Capital by the company - he amount of resulting
t
and generate indices - are easily adjusted to detect
information may be hard
and indicators that and correct mistakes in the to analyse; it is difficult to
are reflected in processes of the company obtain a single numeric
graphs for scorecards - a wide scope of results that
result.
may help to rectify the
company’s current policies
1 MCM methods: calculate the difference between the market capitalisation and the book value as the value
of its intellectual capital or its intangible assets:
Model: Tobin’s Q Rate (James Tobin)
Formula (value of IA) Pros
- offers a global view
market value - not necessary to calculate the rate of return
q = –––––––––––––––––––––––––– - useful for comparing enterprises
assets_replacement_value
Cons
Characteristics
- ard to obtain the necessary information
h
- this is not a method, it is an indicator
(replacement costs)
- approximate evaluation of IA
- depends on the market
- multiple applied to the assets’ book value
- precursorof the IA evaluation methods
Thesis 6

7. Towards a new Model: Market toBook value (SternStewart andLuthy)
model for evaluation
of intangibles Formula (value of IA) Pros
- relatively stable
market value - useful for comparing enterprises
q = –––––––––––––––––––––––––– -may be used even if the results are negative
assets_replacement_value
Cons
Characteristics
- oes not provide the exact value of the
d
- multiple applied to the assets’ book value
Intellectual Capital: the represented items are not
- if equity is negative, the overall result is negative
intangible assets
- sensitive to accounting standards
Modelo: FiMIAM (Irena Rodov and Philippe Leliaert)
Formula (value of IA) Pros
Market value = Tangible capital + Realised - simple methodology that can be applied to any
a
intellectual capital + erosion of the intellectual company
capital - numerical result
- akes into account market fluctuations (“erosion
t
Characteristics of the intellectual capital”)
- ixed method (MCM and DIC)
m - in addition, measures tangible assets
- valuates the Intellectual Capital and yields a
e
numerical result Cons
- ttempts to link the value of the Intellectual
a - nite values of the chosen components of the
fi
Capital with the market value rather than the intellectual capital
book value - ased on the book value of the company
b
- conducted in six steps (historical cost)
- ubjectivity in the choice of the components of
s
the intellectual capital
Model: Balance Invisible (Konrad Group and KarlSveiby)
Formula (value of IA) Pros
Intellectual capital = Individual capital + - development of an IA classification
Structural capital - generates indicators
- a clear view of intellectual assets
Characteristics
- his is not a method, it is a model of evaluating
t Cons
intangible assets - does not yield a numerical value
- precursor of the evaluation methods - is not appropriate for comparing enterprises
- subjectivity in the choice of IA
2 ROA Methods: offer purely financial solutions, in line with the requirements of the shareholders. Used to
evaluate the results, not the organisation:
Model: EVA (Stern Stewart Co.)
Formula (value of IA) Pros
EVA = (ROI – WACC) x Invested Capital - enables one to analyse individual business units
or - enables one to see the real growth of the company
EVA = BAIDT – (VC x cp) - a good starting point
- asy to use and appropriate for making
e
Characteristics comparisons
- measure of financial performance based on the
a
value Cons
- nables to estimate the value of the company and
e - does not consider future performance
its profitability - may lead to inconsistencies
- a very powerful and popular indicator - usinessness profitability has to be higher than
b
- t was a great step to recognise that resources used
i the financing costs
in a company have an associated cost - igher accuracy demandsa more complicated
h
evaluation procedure
- short-term focus
Thesis 7

8. Towards a new Model: CFROI (HOLT Value Associates)
model for evaluation
of intangibles Formula (value of IA) Pros
- elates the results to the company’s ability to
r
Cash flow – amortisation generate cash flows
CFROI = –––––––––––––––––––––––––– - adjusted to inflation
Total gross assets
- ay be calculated at the level of business units or
m
at the level of the whole business
Characteristics
- easures return on investment, taking into
m
Cons
account the inflation, age and life of the assets
- more complicated and less intuitive than EVA
and different amortisation methods
- oes not take into account the risk of the company
d
- may be expressed as a ratio or IRR
- based on historical data
- does not have a future perspective
Model: MVA (Stern Stewart Co.)
Formula (value of IA) Pros
MVA = Market value – invested capital - llows to determine expectations of the results
a
delivered by the strategies that may be adopted
Characteristics - incorporates expectations of the sector
- enables one to detect value in a company
- losely related to EVA: it is equal to the sum of
c Cons
actual values of all EVA expected in future - oes not take into account the opportunity cost of
d
the invested capital
- does not take into account the dividend
- cannot be applied at the level of business units
- s not valid for companies not listed on the stock
i
exchange
Model: CVA (Boston Consulting Group)
Formula (value of IA) Pros
CVA = Invested capital x (CFROI –K) - may be applied at the level of strategic units
- useful when operations are cash-intensive
Characteristics - inks short-term and long-term perspectives of
l
- an index based on the value the company
- valuates the creation or destruction of value in a
e
company in a consistent and numerical way Cons
- a variety of EVA - as to be measured at different times in order to
h
achieve comparability
-a more complicated calculation than EVA
Model: CIV (Evanston Business Investment Corp. Illinois Kellog School of Business, Northweste)
Formula (value of IA) Pros
CIV obtained in seven steps - akes it possible to compare companies of the
m
same sector or business units within the company
Characteristics - hows whether a company can generate future
s
- ssumes that the value of intangibles is defined as
a benefits before it is noticed by the market
the company’s capacity to take over an average - global index of IA
competitor which has similar tangible assets. - easy to use
- a good complement to the MBV method
Cons
- does not break down IA into components
- s not valid if the company’s ROA is below the
i
average for the sector
Thesis 8

9. Towards a new 3 DIC Methods:Direct methods calculate the value input of intangible assets by identifying different
model for evaluation components. These components may be evaluated directly as individual elements or as an aggregated
of intangibles coefficient.
Model: TechnologyBroker (Annie Brooking)
Intellectual Capital Pros
Intellectual Capital = Human capital + - he method evaluates intellectual capital of the
t
Infrastructure assets + Intellectual property assets + company
Market assets - importance of the intellectual property
- related to the objectives of the company
Market value - integrated method
= IC + Tangible assets
Cons
Characteristics - ubjectivity in transforming quantitative results
s
- bjective: audit the value of the intellectual
O into qualitative
capital - does not take into account synergies
- ttaches more relevance to the IA derived from
A - does not have a time horizon
intellectual property - subjective classification of IA
Model: DEC (Eduardo Bueno Campos)
Intellectual Capital Pros
Intellectual capital = Human capital + - focuses efforts on the objectives of the company
Organisational capital+ Technological capital + - rofesional and personal growth of the company’s
p
Client capital members
- reates an intelligent organisation that manages
c
Market value cash flows of the company
= IC + Book value of the assets
Cons
Characteristics - does not take into account the time horizon
- bjective: reinforce the business strategy with
O - does not involve indicators
knowledge management by locating essential - onfusion about the term “competence” and its
c
competences definition
- approaches IA as key factors in creating value - different criteria are used by different auditors
- based on the model of competences - inadequate tools may be applied
- ay be tempted to allow itself follow the inertia of
m
the company
Model: The Value Explorer (Andriessen Tiessen)
Intellectual Capital Pros
Intellectual Capital = Human capital + Structural - monetary valuation of IA
capital+ Client capital - projection of results into the future
- orks well for companies whose activity is based
w
Market value on patents
-
Cons
Characteristics - takes into account only essential competences
- bjective: analyse the origin of IA and calculate
O - does not take into account synergies of the assets
their value - uantitative value is not reliable and has
q
- model of essential competences redundant elements
- qualitative and quantitative result - it is not an integrated method
Thesis 9

10. Towards a new Model: FiMIAM (Irena Rodov Philippe Leliaert)
model for evaluation
of intangibles Intellectual Capital Pros
Intellectual Capital = Human Capital + Structural - imple methodology that can be applied to any
s
Capital + Client Capital company
- numerical result
Market Value - akes into account market fluctuations (“erosion
t
= Tangible C. + Realized CI + erosion of the of the intellectual capital”)
intellectual capital - evaluates tangible assets
Characteristics Cons
- mixed method (MCM/DCI) - finite values of chosen IC components
- evaluates the IC and yields a numerical result - based on the company’s book value
- ttempts to link the value of intellectual capital
a - subjective choice of IC’s components
with the market value rather than book value
- conducted in six steps
4 SC Methods: Scorecard methods are based on indicators and indices with underlying intangible assets, with
results shown as graphs. They are similar to direct methods but do not yield numerical results. Their advantage
is providing an all-embracing view of the intangible assets, which may be applied at any level of the company
and may be adapted to any type of the company.
Model: Balanced Scorecard (BSC) (Robert Kaplan y David Norton)
Intellectual Capital Pros
Intellectual Capital = Perspective of the client + - analysis of horizontal strategic measures
Internal perspective + Perspective of the employee - valuates the contribution of every link in the
e
+ Financial perspective value chain and its overall performance
- easy to understand, no prior experience needed
Market value - attention to the needs of the stakeholders
= Intellectual capital - an be applied to companies and organisational
c
areas
Characteristics - takes into account interrelations
- system of financial and non-financial
A
evaluation Cons
- bjective: view of the company from four
O - weak financial analysis
perspectives, characterised by a cause and effect - indicators have to be chosen carefully
relationship - subjective indicators
- seful as a complement to other financial
U - rigid model
measurements
- ranslates the company strategy into financial
T
and non-financial indicators
- Creates strategic maps
Model: Skandia Navigator (Lief Edvinsson)
Intellectual Capital Pros
Intellectual Capital = Human Capital + Structural - incorporates financial elements
capital ( =Client C. + Organisational C. (= - improved predictive ability
Innovation C.+ Process C.)) - a broader view of the company
- can be adapted to any company
Market value
= Financial capital (past) + Intellectual Capital Cons
(present and future) - xperienced personnel are needed for the
e
application
Characteristics - t is difficult to apply the same methodology to
i
- based on the BSC and the Konrad model different types of capital and their relations
- bjective: organise management of intangibles
O - does not analyse synergies between the areas
based on five perspectives (financial, client,
process, research and development, HR)
- human focus: central element
- key factors + strategic objectives
Thesis 10

11. Towards a new Model: Intangible Assets Monitor (IAM) (Karl ErikSveiby)
model for evaluation
of intangibles Intellectual Capital Pros
Intellectual capital =Internal structure +External - iew of the company from the non-financial
v
structure + point of view
Competencies of the personnel - ombines two aspects, which makes it easy to
c
understand (external and internal)
Market Value - easily comparable results
= Intangible Assets + Invisible Financing
Cons
Characteristics - only 3 indicators
- bjective: to see whether intangible assets generate
O - few financial indicators
value and measure them from 4 perspectives - companies are not compared
(growth, efficiency, innovation and stability) - does not yield numerical value of the assets
- Fundamentally non-financial indicators - ubjectivity in the choice of the assets should be
s
- usiness value from the non-financial point of view
B taken into account
- istinguishes between the human and structural
D
capital
- uggests that a balance may be achieved by
S
combining the intangible (invisible) and the
accountable (visible) information
Model: IC-dVAL® (AhmedBounfour)
Intellectual Capital Pros
Intellectual Capital = human capital + structural - Enables to compare companies
capital - nables to make projections from the
E
microeconomic level (company) to the
Market value macroeconomic level (nation)
= Intellectual value of nations = financial wealth+
intellectual capital Cons
- oes not take into account the relationship
d
Characteristics between the utilisation of the resources and the
- bjective: view of companies from four different
O result
perspectives and two dimensions - ot fully adequate structure of the intellectual
N
- erspectives: resources, processes, output and
p capital
intangible assets
EMPIRICAL FRAMEWORK economic benefits in future and contributes to
creation of value.”
The thesis then proceeds to an empirical study.
The goal of the field work is to expand the scope of 2. The need for a detailed classification of
study by incorporating qualitative research. Another intangible assets
objective is to obtain additional relevant information Both the theoretical and the empirical dimensions
about the state of intangible assets in companies in point to the need for a detailed classification
order to highlight the practical aspect of the issue. of intangible assets. However, the degree of
accuracy should depend on the circumstances and
The fieldwork included 16 in-depth interviews with reasonable effort.
experts on the issue19.
3. The role of a detailed classification in evaluation
CONCLUSIVE FRAMEWORK of intangible assets
A classification of intangible assets would be an
Findings
important tool for their evaluation. When intangible
1. The definition of Intangible Assets assets are localised and individually described, one
The study found the need for a unified definition can compare them and apply appropriate evaluation
of intangible assets, which still does not exist. The methods. But it does not mean that this classification
author suggests the following definition: has to be complicated. One has to bear in mind that
most of the methods are based on a simple formula:
“Any non-physical and non-monetary asset that intellectual capital = human capital + structural
may be identified and controlled, that may generate capital + relational capital.
19. 72 experts have been contacted in the course of the field work, and 33 responses have been obtained. 16 of them have been positive and led to interviews.
Thesis 11

12. Towards a new 4. Transactions with intangible assets and on the one hand, financial methods offer results
model for evaluation commercial contracts that can be easily compared to the situation on
of intangibles Companies exchange some of the intangible the market, which is important for concluding
assets by entering into transactions (cooperation contracts; on the other hand, non-financial data
agreements, purchases of companies or products, improves the quality of valuation and management.
etc.), which imply exchange of knowledge, brand, In fact, many experts interviewed in the course
image, trust, responsibility, etc. of the empirical study, point to this difference:
financial methods for evaluation and non-financial
5. Intangible assets derived from synergies methods for management.
The thesis comes to a convincing conclusion that
synergies may generate intangible assets and that Álvarez Villanueva justifies the creation of a new
existing intangible assets may be expanded by measurement unit, which, like meter is used for
synergies, which may be an advantage for companies measuring distance or gram for measuring weight,
creating synergies. However, it is important to be would be able to measure certain characteristics of
aware of the context in which this process occurs. intangible assets. Álvarez is not a proponent of a
global index, which in his opinion would lead to the
6. Intellectual capital and management of strategic loss of innumerable shades of meaning. However, he
resources supports creation of a standardised index for each
The thesis shows that measurement of the intellectual perspective, whose numerical value would have the
capital helps to manage strategic resources. same value as the financial results (which describe
other aspects of the business).
7. Accounting regulations for intangible assets
Lack of accounting standards has been observed 10. Objectives of projects for evaluation of
with regard to the need of communicating intangible assets
intangible assets. Introduction of such standards is a Choosing the evaluation method implies not only
fundamental step in their evaluation, however their knowing the characteristics of the company and
development is still at an early stage. its environment, but also taking into account the
purpose of evaluation: a transaction, management
According to the author of the thesis, accounting or accountability. Depending on these factors, one
standardisation is an important driver of evaluation may opt for one or another classification of the
of intangible assets, as she states that “while there methods. Clear understanding of the evaluation’s
is no concrete and clear impact on financial purpose helps to obtain valid results.
statements of companies, valuation of intangible
assets will remain optional”. 11. The role of intangible assets in strategic
decision-making
8. Intangible assets on the balance sheet of Evaluation of intangible assets may yield information
the company about generation of value, that may be very useful
Although accounting standardisation of intangible for the company. It means that intangible assets play
assets is an important step in their valuation, it is an important role in strategic decision-making.
not fundamental. In fact, there is no consensus with
respect to their incorporation into the balance sheet. The process of strategic decision-making in a
At the same time, there is a tendency to report them company has developed over time from the classic
in the discussion section of the financial statements. perspective, where only tangible assets were taken
Álvarez points out that although such reporting is into account, to an integrated approach based on
of purely informative and decorative character, lessons learnt in the past. Intangible assets affect the
the mere fact of including intangible assets in the strategy, and not the other way around.
financial statements would be the first step towards
drawing attention to them. Álvarez Villanueva believes that evaluation of
intangible assets may provide valuable information
9. Types of evaluation methods of intangible assets about the company and therefore should be included
The frameworks of this research point clearly to in any strategic planning, both short-term and/or
the fact that there is no consensus on the types of long-term.
evaluation methods that can be applied to intangible
assets. Each of the methods offers certain advantages 12. A unified method
and has drawbacks that have to be taken into account There is no unified method for evaluation of
depending on the moment or the situation. But it is intangible assets, which would enable integrated
important to understand that the chosen method has approach regardless of the circumstances and the
to be applied consistently over a period of time in environment of the company. In fact, the thesis
order to have comparable and conclusive results. suggests that one should discard this utopic vision
and instead unify the criteria to develop methods
The author believes that it is correct to combine that can be applied to different categories depending
financial and non-financial methods. In this way, on the focus.
Thesis 12

13. Towards a new It is clear that a combination of methods is needed, for it is possible to manage something without
model for evaluation which would eliminate those that are mere variations knowing its exact value.
of intangibles of already existing ones. At the same time, the wide
range of methods should be preserved which would Addressing the initial hypothesis,
enable one to choose the best method depending on
objectives and questions
the objectives and the context.
There are some specific conclusions related to the
initial hypothesis
13. Intangible assets derived from communication
There are intangible assets that are derived from
• H1:There is no universal failure-
communication and depend on it. They are
proof method of evaluating intangible
associated with the same problems in terms of
assets that could be applied to any
evaluation and management as other intangible
company and in any circumstances
assets. Brand is probably the most significant asset
in this group. • H2:Despite significant evolution in
recognition of intangible assets, they are
14. Responsibility for intangible assets derived not communicated in a way that could be
from communication effective for appropriate management and
There is currently no consensus on who should bear included in financial statements, thus impeding
the responsibility for the management of intangible standardization of the evaluation process.
assets in companies. • H3:On many occasions evaluation of intangible
assets is not performed because companies
The author believes that the responsibility for do not have access to different evaluation
management of intangible assets should be assigned methods. In many cases it is impossible to
depending on the type of the company. More involve an expert who could offer advice.
specifically, on its size and corporate structure.
Addressing theobjectives:
15. Reporting the intangible assets: discussion
section or the balance sheet • O1:Confirm that despite the existence
Including intangible assets in the balance sheet of of numerous evaluation methods, there
the company implies the use of financial methods for is no single method that could be valid
recording them. An exception would be creating new on its own, and could be universally
measurement methods that could convert the results applied in any environment.
of non-financial methods (indicators) into elements
There is clearly no universal method for evaluating
with numerical values that could be measured and
intangible assets for their proper management.
compared, but only if such method is possible.
Therefore, the characteristic “universally” does
not correspond to reality. The conclusion is
Regardless of the used method, the reality
that none of the methods is valid on its own.
demonstrated by the empirical framework is that
the information about intangible assets is included • O2:Steps that should follow communication
only in some cases. That’s why it is recommended in order to improve the recognition and
to include at least a verbal description of intangible management of intangible assets.
assets in the financial statements of the company. The response may be obtained by means of
Their incorporation in the balance sheet should be combining the results of the theoretical and
subject to obligatory standardization both in terms practical approaches. First, it is necessary to review
of definitions and the evaluation methods. the treatment of intangible assets in acconting
as well as the terms and conditions to follow; the
Álvarez Villanueva believes that it is important to empirical perspective demonstrated the need
include a verbal description of the situation with for reporting and suggested including intangible
intangible assets in the company. assets in the descriptive part of the reports or the
balance sheet of the company. Communication
16. Management of intangible assets in future should be followed by the below steps:
The importance of intangible assets will be 1. detect and identify intangible assets
increasing until it becomes a norm for companies. 2. understand their context in the company
This will be a more professional approach, based 3. determine who is responsible
on creation of value, focused on experiences and for their management
helping companies to survive on the market. 4. apply the necessary management
measurements
The author agrees that this step will take longer 5. communicate their existence and
than the phase of recognition and management, and evolution across the organisation
clarifies that one should not confuse management of 6. decide whether they should also
intangible assets – where they can be treated as a be communicated to external
whole or divided into categories – with evaluation, parties and in what way
Thesis 13