0
Response to New School discussion on
US Corporations in the Recovery and Beyond
Friday, April 23, 2010



         The Rol...
Corporate value is increasingly
intangible
                                                         Components of S&P 500®...
This change touches all sectors

           Intangible Value as a % of Total Market Capitalization
                       ...
Here’s the
calculation:

• Total corporate value per the stock
  market
• Minus: tangible assets at historical cost
• Minu...
Global mergers – 2007
(mergers are the one time these intangibles
hit the balance sheet)


                               ...
The gap is not “goodwill”
• This large amount of intangibles in
  business is not the result of some abstract
  market “fe...
U.S. corporate investments - 2007



                                                                             Tangible...
What are intangible investments?
 Calculations extrapolate from currently-available
 data including:
 –   Software
 –   R&...
What it all really means
• Analysts and investors cannot rely on the
  balance sheet to help them value stocks
• So they h...
Filling in the gap
• Field of intellectual or intangible capital
  emerged to study this information gap
• IC field—strong...
Knowledge
 Assets




            ICA-11
Structural capital is special…
• Paul Romer calls it software
• Arnold Kling and Nick Schulz call it recipes
• John Zysman...
The economic opportunity of the
knowledge era?

   …creating value by leveraging
      human + relationship
       + struc...
To end financialization…
…and take advantage of the potential of the
 knowledge era, we need to:

  – Close the intangible...
• A manager’s guide to
  identifying, managing and
  measuring intangibles
• Goal is to leverage the
  knowledge and
  com...
Resources
Book: www.intangiblecapitalbook.com
Community: www.icknowledgecenter.com
Blog: www.smartercompaniesblog.com

   ...
Upcoming SlideShare
Loading in...5
×

The Role of the Intangibles Information Gap in the Financialization of the American Corporation

707

Published on

Short-term thinking and financialization of the American corporation has be fueled and enabled by the intangibles information gap. Closing this gap is imperative to enable longer-term thinking about the future capacity of our corporations.

Published in: Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
707
On Slideshare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
9
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Transcript of "The Role of the Intangibles Information Gap in the Financialization of the American Corporation"

  1. 1. Response to New School discussion on US Corporations in the Recovery and Beyond Friday, April 23, 2010 The Role of the Intangibles Information Gap in the Financialization of the American Corporation Mary Adams I-Capital Advisors ICA-1
  2. 2. Corporate value is increasingly intangible Components of S&P 500® Market Capitalization 14,000 Market Premium 12,000 Intangible Book Value Tangible Book Value 10,000 8,000 S&P 500 Market Cap ($ billions) 6,000 4,000 2,000 - 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Research: Ned Davis ICA-2
  3. 3. This change touches all sectors Intangible Value as a % of Total Market Capitalization by Sector 100% 90% 80% 70% 60% 1975 50% 2005 40% 30% 20% 10% 0% ner gy als ials ary ap l es ar e cia ls ice s o gy tie s teri st r tion er St th C in an er v tili E M a I nd u cr e al S chn ol U Dis o ns u m He F ion s Te er ca t tion um C u ni ma C o ns o mm Inf or lec Te ICA-3
  4. 4. Here’s the calculation: • Total corporate value per the stock market • Minus: tangible assets at historical cost • Minus: intangibles on the balance sheet from mergers • Equals: “market premium” or “unrecognized intangibles” ICA-4
  5. 5. Global mergers – 2007 (mergers are the one time these intangibles hit the balance sheet) Tangible, 30% Goodwill, 47% Intangible, 23% E&Y: Acquisition Accounting – What’s Next for You? ICA-5
  6. 6. The gap is not “goodwill” • This large amount of intangibles in business is not the result of some abstract market “feeling” • It is the result of 30+ years of investment in the knowledge infrastructure of American corporations (people, processes, info tech, networks) • Annual investment in knowledge intangibles now exceeds tangible investment…. ICA-6
  7. 7. U.S. corporate investments - 2007 Tangible $1.2 trillion, 43% Intangible $1.6 trillion, 57% Business Week, October 29, 2009 (using unpublished data from Corrado, Hulten and Sichel) ICA-7
  8. 8. What are intangible investments? Calculations extrapolate from currently-available data including: – Software – R&D – Advertising – Training But not everything is counted because current measurement systems (both economic and accounting/financial) were built for a tangible, industrial economy And most of these investments are treated (at both macro and firm level) as current-year expenses ICA-8
  9. 9. What it all really means • Analysts and investors cannot rely on the balance sheet to help them value stocks • So they have to rely on the income statement but this is a very short-term source of information • Financialization reflects this short-term view • Financialization cannot be fixed without also closing the intangibles information gap ICA-9
  10. 10. Filling in the gap • Field of intellectual or intangible capital emerged to study this information gap • IC field—strong following in Europe & Asia • Focus is primarily on: – Identifying intangibles – Understanding link to value creation – Reporting to stakeholders • Generally identifies three classes of intangibles…. ICA-10
  11. 11. Knowledge Assets ICA-11
  12. 12. Structural capital is special… • Paul Romer calls it software • Arnold Kling and Nick Schulz call it recipes • John Zysman calls it the algorithmic revolution …Structural Capital is operationalized knowledge in a highly scalable, enduring form that is not subject to the laws of scarcity—it changes everything ICA-12
  13. 13. The economic opportunity of the knowledge era? …creating value by leveraging human + relationship + structural capital ICA-13
  14. 14. To end financialization… …and take advantage of the potential of the knowledge era, we need to: – Close the intangibles information gap – Offset the short term view of the income statement – Give investors and stakeholders a view previously provided by the balance sheet of the productive capacity and potential of the firm…its intangible capital ICA-14
  15. 15. • A manager’s guide to identifying, managing and measuring intangibles • Goal is to leverage the knowledge and competencies of firms for greater value, performance and innovation ICA-15
  16. 16. Resources Book: www.intangiblecapitalbook.com Community: www.icknowledgecenter.com Blog: www.smartercompaniesblog.com Mary Adams, 781-729-9650 adams@i-capitaladvisors.com Twitter: maryadamsica ICA-16
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×