Value of intangibles hurra h's creativity


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  • Dept. Of Management SciencesFAST – National University of Computer and Emerging Sciences, Lahore.Saad MunirL050411 - BBACourse: Advance Business ConceptsInstructor: Mr. Hassan
  • Value of intangibles hurra h's creativity

    1. 1. The<br />Real<br />value<br />of<br />Intangibles<br />
    2. 2. Intangible Assets<br />Value of a company = Intangible Assets + Tangible Assets<br />Intellectual Capital<br />Human Capital<br />Customer Capital<br />Organizational Capital<br />Distributor Capital<br />Supplier Capital<br />Intellectual Assets<br />Know-how<br />Contracts<br />Permits and Licenses <br />Non Compete Agreements<br />Intellectual Property<br />Patents<br />Trademarks/Trade Names<br />Copyrights<br />Trade Secrets<br />
    3. 3. Value Intangibles <br />
    4. 4. THE IMPORTANCE OF VALUATION<br />A major contributor to corporate worth<br />Value of alliances, network, human capital and leadership greater than $1 trillion for USA(2001)<br />Exclusion causes underestimation of the corporate worth<br />Impact on investor decision making<br />Necessary for creation of open, fair and efficient markets<br />
    5. 5. Intangible Asset – Customer Relationships<br /> In March 2005, bought for £1.113bn. £260m was assigned to the brands RAC and BSM and a 'market' value of £132m was put on contractual customer relationships. <br />
    6. 6. I wish I had worked out the value of intangibles as well…<br />
    7. 7. VALUATION & MISPRICING<br />Market Overvalues – Wastage of Capital<br />Market Undervalues – This Burdens firms with an excessively high cost of capital<br />
    8. 8. Undervalued or Overvalued<br />By Calculating a company’s “comprehensive value”, which takes into account its intangible assets as well as its physical and financial assets, you can assess whether the enterprise is overvalued or undervalued by investors.<br />Source: Harvard Business Review<br />
    9. 9. Delayed Market Reaction to an R&D Investment<br />Source: Harvard Business Review<br />
    10. 10. Misallocation of resources – a consequence of Undervaluation<br />Shift from “R” to “D”<br />
    11. 11. …my teacher warned me, never to under-estimate the REAL value of intangibles…<br />
    12. 12. Impact of Correct Valuation<br />“The Soft Assets – a hard Competitive Advantage”<br />
    13. 13. EXPLOITABLE HUMAN CAPITAL<br />Source: Harvard Business Review<br />
    14. 14. Identifying the Capabilities<br />Determine which part of the business to audit.<br />Create the content of the audit<br />Gather data from multiple groups on current and desired<br />a) 90-degree assessment<br /> b) 360-degree assessment<br /> c) 720-degree assessment<br />Synthesize the data to identify the most critical capabilities<br />Put together an action plan<br />
    15. 15. Issues with Reporting Intangibles<br />Companies are reluctant to disclose competitive disadvantage<br />Issues with identification of the valuableintangibles<br />Shareholder liability issues<br />Managers may misuse information<br />Forgoing innovation and risk reduction by focusing more on the productivity of the intangibles<br />
    16. 16. Issues with Reporting Intangibles<br />A lot of value creation is not translated into financial terms<br />Inability to identify which asset to value - what is the source of value creation?<br />Inconsistency in valuation by different organizations<br />Fear of giving away proprietary information<br />
    17. 17. Traditional Recording Methods<br />Absence of effective accounting of intangibles<br />Conventionally, intangibles reported on balance sheet only in course ofan acquisition as ‘Goodwill’<br />Until 2001, GAAP required firm toamortize goodwill as expense<br />FASB stopped requiring companies to amortize Goodwill as expense<br />In 2003, SEC established new guidance for MB&A statements which address the disclosure of non financial performance measures<br />FASB and AICPA developed lists for intangibles but lists barely resembles<br />
    18. 18. Issues with Traditional & Existing Reporting and Valuation Methods<br />Based on traditional methods, goodwill appears only upon acquisition.<br />No clear definition – When is technology an expense and when a capability?<br />Irrationality of amortization – Some assets have an indefinite useful life.<br />Exclusion of intangible assets developed internally<br />Inconsistency in reporting Standards<br />
    19. 19. Effective Valuation tool<br />Transparent process and assumptions<br />Clear definition of intangible asset<br />Quantifying the value of the intangible asset<br />
    20. 20. Recent Developments<br />Addressing intangibles in internal strategy and communication with shareholders<br />Reporting of intangible ratings in annual reports<br />Distribution of white papers & measurement tools by ministries in Japan<br />Treatment of R&D as an investment and not an expense by BEA<br />R&D satellite accounts by BEA to supplement GDP accounts<br />Danish IC Statements<br />
    21. 21. Appropriate Measures<br />Government Initiatives in collaboration with stakeholders and interested parties - executives, banks and statisticians<br />The role of macro-economists<br />Accounting bodies should make it mandatory for companies to disclose meaningful information regarding intangibles assets.<br />Companies should voluntarily go for disclosure. <br />
    22. 22. NEW TRENDS….<br />Using Intangible assets as a collateral !!!!<br />Burn Stewart Distillers refinanced with KBC Business Capital<br />$31million Package was linked to the values of brands, accounts receivables etc.<br />
    23. 23. Understanding the Value of Intangible Assets<br />
    24. 24. Any Questions???<br />Thank you!<br />