intangible asset

Capitalism Without Capital: The Rise of the Intangible Economy

by Jonathan Haskel and Stian Westlake  · 7 Nov 2017  · 346pp  · 89,180 words

after the conference, Charles Hulten combed through Microsoft’s accounts to explain why it was worth so much (Hulten 2010). He identified a set of intangible assets, assets that “typically involve the development of specific products or processes, or are investments in organizational capabilities, creating or strengthening product platforms that position a

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facing us today: innovation and growth, inequality, the role of management, and financial and policy reform. We shall argue there are two big differences with intangible assets. First, most measurement conventions ignore them. There are some good reasons for this, but as intangibles have become more important, it means we are

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them: an interesting issue for statistics bureaus, but little more. But there is, we will argue, a more important consequence of the rise of intangibles: intangible assets have, on the whole, quite different economic characteristics from the tangible investment that has traditionally predominated. First of all, intangible investment tends to represent a

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. The tendency for others to benefit from what were meant to be private investments—what economists call spillovers—is a characteristic of many intangible investments. Intangible assets are also more likely to be scalable. Consider Coke: the Coca Cola Company, based in Atlanta, Georgia, is responsible for only a limited number

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systems and cultivated biological resources. As intangibles it includes R&D, mineral exploration and evaluation, computer software and databases, and creating artistic originals. The other intangible assets are those set out in Corrado, Hulten, and Sichel 2005. Intangible Investment Has Steadily Grown The story of how intangible investment expanded in the gym

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the time were not focused on measuring intangible investment, in recent years scholars have been able to reconstruct how much was invested by businesses in intangible assets decades ago. Figure 2.1. Intangible and tangible investment over time, United States. Data are US business investment in intangible and tangible assets relative

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This fact has not been lost on economists. Over the last century researchers in different subfields of economics have looked into various unusual properties of intangible assets. David Warsh’s fascinating book Knowledge and the Wealth of Nations tells the story of how the economist Paul Romer developed an improved theory of

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the ways in which intangible investment differs from tangible investment. In the section that follows, we’ll look at each of the four characteristics of intangible assets—scalability, sunkenness, spillovers, and synergies—and discuss (a) why intangibles behave this way (especially in comparison with tangible investments) and (b) why each characteristic

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, consist of metal but also lots of knowledge, for example, from the production process. Why then isn’t a tangible asset simply a collection of intangible assets? It’s helpful to think of “embodied” and “disembodied” knowledge. To produce an airliner requires tangible inputs (like metal) and intangible inputs (like software

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media/for-organisations/documents/1151/datasets-foi-guidance.pdf. Scalability Why Are Intangibles Scalable? Physical assets can only be in one place at one time. Intangible assets, by contrast, can usually be used over and over, in multiple places at the same time. Once you’ve written the Starbucks operating manual

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and design—once, before it can then make an arbitrarily large number of engines. This scalability applies to many sorts of intangible assets. Once a business has created or acquired an intangible asset, it can usually make use of it again and again at relatively little cost, compared to most physical assets. The

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“network effects.” A network effect exists when assets become more valuable the more of them exist. Network effects can be found among both tangible and intangible assets. So, for example, telephones or fax machines are much more valuable when almost everyone has them. Indeed, the current digital tech revolution has drawn

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to spread across the world. Google, Microsoft, and Facebook need relatively few tangible assets compared to the manufacturing giants of yesteryear. They can scale their intangible-asset bundle or software and reputation and so get very big. This type of scalability is, of course, enhanced by network effects.3 Second, with

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changes complex, messy intangible lending into something a lot more like a simple mortgage. Sunkenness also contributes to the uncertainty around intangible assets. Part of the reason for sunkenness is that intangible assets are often very context-specific. It might be a supply chain relationship that is unique to the particular industry or suppliers

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spillovers of the original investment. There are good reasons to deplore patent trolling—but it is a pretty straightforward consequence of the spillover characteristic of intangible assets. If the law isn’t strong enough, companies can lobby to have it changed. Copyright lawyers sometimes talk about the Mickey Mouse Curve—the

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property. Conclusion: The Four S’s of Intangibles Intangibles have four unusual economic properties. These properties can exist with tangible investments, but on the whole intangible assets exhibit them to a greater degree. These characteristics are: • Scalability • Sunkenness • Spillovers • Synergies Three further characteristics emerge from these four, namely, uncertainty, option value,

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intangibles (measured by R&D), spending on regulation and lobbying has an even stronger effect on valuations (Bessen 2016). Now, perhaps the contestedness of intangible assets that we discussed in chapter 4 encourages firms to spend money asserting or protecting their claims to them. In recent years, an increasing proportion of

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we have entered a phase where the transition to an intangible economy is requiring a new set of institutions to resolve the inherent contestedness of intangible assets. An optimistic interpretation of this is that the legal and institutional structures behind a transformation to an intangible-intensive economy are being worked out

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economy is in a phase where the transition to an intangible economy, which requires a new set of institutions to resolve the inherent contestedness of intangible assets, has skewed investment toward lobbying, legal arguments, and institutional reboots, none of which are immediately productive. Appendix: Effect of Unmeasured Intangibles on GDP Growth

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might be expected to increase inequality both of wealth and income. Increasingly intangible-intensive firms will need better staff to create synergy with their other intangible assets: better managers, better movie stars, better sports heroes. Firms will screen them more thoroughly and pay them more handsomely. As for wealth inequality, the

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we shall do something different. We shall instead concentrate on whether the gradual change in the capital base of the “real economy” from tangible to intangible assets has implications for the functioning of the financial sector. We will argue two main things. First, that the gradual shift to intangibles helps explain

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many of the perceived problems that the financial sector is accused of. The reason for this can be traced back to the economic qualities of intangible assets that we outlined in chapter 4: scalability, sunkenness, spillovers, and synergies, and the broader characteristics that emerge from them, uncertainty and contestedness. Second, we

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investments and penalizing managers with a short-term horizon. The alignment of shareholder and manager incentives that blockholding brings is all the more important with intangible assets, since they are so often hidden from outside investors’ view and so effort is needed to unearth them. We’ll discuss further why they

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highly paid too, and the superior performance of these funds does not persist. One possibility is that this persistence stems from the characteristics of the intangible assets that VC-backed businesses invest in. We have seen that intangibles often have significant synergies with one another: for example, combining Google’s search

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trained employees providing customer service. Indeed, perhaps the most distinctive asset will be the ability to weave all these assets together; so a particularly valuable intangible asset will be the organization itself. These insights are implicit in Peter Thiel’s book Zero to One. His view is that commercial success is built

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the right organizational design, and that choice depends on whether your organization predominantly uses or produces intangibles. So, if you are predominantly a producer of intangible assets (writing software, doing design, producing research) you probably want to build an organization that allows information to flow, helps serendipitous interactions, and keeps the

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stressing the new scope for easier exchange of ideas, experimentation, and faster implementation of ideas. What if, by contrast, you are more a user of intangible assets: say, the Amazon warehouse, using the knowledge of the routing algorithm, or Starbucks, using the franchise book? For these firms, the organization and so

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encouraging influence activities suggest that different types of organizations will emerge, matched to the parts of the intangible economy they specialize in. Are you creating intangible assets (writing software, doing design, producing research)? If so, you probably want a flat organization with more autonomy, fewer targets, and more access to the

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on influence activities, but will build an organization that allows information to flow, helps serendipitous interactions, and keeps the key talent. Are you using intangible assets (say, the routines in the Starbucks franchise book)? Then you probably want more control and authority to use the asset to its fullest advantage and

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managers would do so by building trust and long-term relationships in the industries where they chose to make their expertise. With the building of intangible assets and the lack of information in company accounts, the pressures for this change are there. Conclusion: Competing, Managing, and Investing in an Intangible Economy

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The growth of intangible investment has significant implications for managers, but it will affect different firms in different ways. Firms that produce intangible assets will want to maximize synergies, create opportunities to learn from the ideas of others (and appropriate the spillovers of others’ intangibles), and retain talent.

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workplaces may end up looking rather like the popular image of hip knowledge-based companies. But companies that rely on exploiting existing intangible assets may look very different, especially where the intangible assets are organizational structure and processes. These may be much more controlled environments—Amazon’s warehouses rather than its headquarters. Leadership will

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areas and exploit their synergies. Financial investors who can understand the complexity of intangible-rich firms will also do well. The greater uncertainty of intangible assets and the decreasing usefulness of company accounts put a premium on good equity research and on insight into firm management. This will present a challenge

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good” looks like in intellectual property is very hard. Second, we saw that in an intangible economy, synergies are very important. Combining different ideas and intangible assets sits at the heart of successful business innovation—and is what marks out the world’s most successful companies, from Google to Disney to Tesla

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industries since the early twentieth century. Given sufficient advances in technology and infrastructure, these kinds of markets and institutions need not be limited to major intangible assets like patents or copyrights. They may also be applicable to the tiny elements of user-generated data that collectively make up the vastly valuable databases

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need to thrive? First of all, governments should encourage new forms of debt finance that make it easier for companies to borrow against intellectual property—intangible assets to which property rights can be attached. Government cannot usually make financial innovation happen, but it can make it easier. As we saw, the

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of those problems, creating particularly socially charged forms of inequality, threatening social capital, and creating powerful firms with a strong interest in protecting their contested intangible assets. We would like to tell you we have a solution to this problem, but, like most politicians in the developed world, we do not.

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the financing of business investment. Debt finance is less appropriate for businesses with more sunk assets; public equity markets appear to undervalue at least some intangible assets in part due to underreporting of such assets but also due to the uncertainty around intangibles; venture capital, a response to the sunkenness and

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uncertainty around intangibles, is currently hard to scale to many industries. d. New requirements for infrastructure. In particular, the shift from tangible to intangible assets has increased the need for IT infrastructure and affordable space in large cities, while making greater demands on our “soft infrastructure”: the norms, standards, and

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2010/09/Manufacturing-Survey-Instrument.pdf.) 9. There are, of course, a lot of complications over and above these general principles. First, in company accounts, intangible assets are often split into “intangibles other than goodwill” (such as the patent discussed) and “goodwill.” Goodwill is generated only externally, when a business is combined

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of Earnings Inequality among the ‘Other 99 Percent.’ ” Science 344 (6186). Awano, G., M. Franklin, J. Haskel, and Z. Kastrinaki. 2010. “Measuring Investment in Intangible Assets in the UK: Results from a New Survey. Economic & Labour Market Review 4 (7): 66–71. Bakhshi, Hasan, Carl Benedikt Frey, and Mike Osborne. 2015

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“What Do CEOs Do?” Harvard Business School, Working Paper, No. 11–081. Barth, Mary E., Ron Kasznik, and Maureen F. McNichols. 2001. “Analyst Coverage and Intangible Assets.” Journal of Accounting Research 39 (1): 1–34. doi:10.1111/1475-679X.00001. Belfield, Chris, Jonathan Cribb, Andrew Hood, and Robert Joyce. 2014. Living

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Connections in Late Victorian Britain.” Journal of Economic History 73 (1): 142–76. doi:10.1017/S0022050713000053. Brynjolfsson, Erik, Loren Hitt, and Shinkyu Yang. 2002. “Intangible Assets: How the Interaction of Computers and Organizational Structure Affects Stock Market Valuations.” Brookings Papers on Economic Activity 33 (1): 137–98. Brynjolfsson, Erik, and Andrew

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Future of Cities.” Journal of Urban Economics 43 (1): 136–56. Giorgio Marrano, Mauro, and Jonathan Haskel. 2007. “How Much Does the UK Invest in Intangible Assets?” CEPR Discussion Papers, No. DP6287. http://ideas.repec.org/p/cpr/ceprdp/6287.html. Giorgio Marrano, Mauro, Jonathan Haskel, and Gavin Wallis. 2009. “What

Restarting the Future: How to Fix the Intangible Economy

by Jonathan Haskel and Stian Westlake  · 4 Apr 2022  · 338pp  · 85,566 words

material economy to one based on ideas, knowledge, and relationships in our 2017 book, Capitalism without Capital. There we noted the shift towards investment in intangible assets (such as software, data, R&D, design, branding, training, and business processes). This shift has been ongoing for more than four decades. As we

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are difficult to use as security for loans. Simultaneously, wasteful influence activities increase: there are more lawsuits around intellectual property, which grants ownership over certain intangible assets, and dysfunctional arguments over planning and zoning occur in the densely populated areas where intangible investment seems to thrive. Without the right institutions, two problems

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economic implications. Specifically, we believe that our current problems exist because the nature of capital has changed, with businesses investing ever more in (largely unmeasured) intangible assets; the growth of this intangible capital has slowed in the past decades; and we have not yet mitigated the challenges caused by intangibles. Nor have

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differently from the physical assets that made up most business investment in the past. Specifically, we identified four main ways in which intangible assets tend to differ from tangible assets: (1) intangible assets are often highly scalable (an asset like an algorithm can be used across a very large business); (2) intangibles have spillovers

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first proposed measuring intangible investments in a 1962 book; it was subsequently popularised by management guru Peter Drucker. More recently, a 2013 OECD report on intangible assets described them as “knowledge-based capital.” It is true that some intangibles can fairly be described as knowledge—for example, the result of R&D

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as postindustrial, a phrase coined by French sociologist Alain Touraine and popularised by Daniel Bell in the 1970s. People sometimes infer from this description that intangible assets are mainly important to service industries and that an intangibles-rich economy is one with many services and little manufacturing. But this too is a

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think about intangible capital. If we look at manufacturing firms in rich countries, we find that, for the most part, they are heavy investors in intangible assets as well as tangible assets. They invest in R&D and design in order to produce cutting-edge products, in organisational development and training to

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profitability include a commitment to research, development, and innovation; strong, durable, information-rich relationships with suppliers and customers; and excellent workforce skills and organisation: all intangible assets.40 The success of the so-called developmental state in Japan, Taiwan, and South Korea would be impossible without heavy investment in intangibles such as

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as Google, Apple, Facebook, and Amazon. In a sense, this association is fair. The value of these business giants derives mostly from the very valuable intangible assets they own. But the importance of intangible investment is not limited to the tech sector. To the extent we can measure it, we find intangible

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to an intangibles-rich firm such as Facebook than to a laggard. In addition, it seems that large firms benefit particularly from the spillovers of intangible assets, to the extent that they are adept at exploiting these spillovers, copying or adapting their smaller competitors’ ideas (what the tech industry has come

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between the best and the rest, the benefits of clustering, and the rise of contestedness. The Gap between the Best and the Rest Because valuable intangible assets are scalable, a company that owns them can grow very big and very rapidly at its competitors’ expense. And because intangibles have synergies, a firm

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with several valuable intangibles will have a disproportionately strong competitive position. In addition, intangible assets’ ability to spill over to other firms can benefit market-leading businesses, to the extent that some of them are adept at capturing the benefit

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-behind towns or the countryside. The gap widens between the best, intangibles-rich businesses and their laggard competitors. The ownership of intangible assets is often unclear and therefore contested. And intangible assets are worth less in the event of business failure, posing a challenge for lenders and for businesses looking for credit. Intangibles and

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not be good measures of rivalry in an intangible-intensive world. When companies can scale up and exploit synergies, small differences between companies with attractive intangible assets and unattractive assets are greatly magnified. Thus, the leading companies will pull away from the laggards and reap rewards from intangible investment. That doesn’t

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arise everywhere. Instead, they arose for the most part in dynamic cities that exhibit the clustering and agglomeration effects driven by the growing importance of intangible assets. The link between inequality of status and the intangible economy is more obvious. As clustering has become more economically important, the economic divide between thriving

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own emergency hospitals and avoided breaching ICU capacity. In fact, the countries that excelled in handling the COVID-19 pandemic had made strong investments in intangible assets: effective track-and-trace and quarantine systems (which rely on software, data, and processes), functioning supply chains (to avoid the situation seen in several Western

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that have been able to maintain relatively large manufacturing sectors—Germany and Japan are prime examples—we find that their competitive advantage relies mostly on intangible assets: skills and training among their workforce, R&D and design abilities that allow them to stay at the cutting edge of product technology, and

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we will see from the history of the lighthouse, a good institution can become a bad one as the economy changes. The unusual properties of intangible assets require specific institutional arrangements, which for the most part do not yet exist. Institutional renewal and innovation are necessary to end the slowdown of intangible

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, synergies, sunk costs, and scale—and an economy increasingly dependent on it have changed the underlying conditions of exchange and generated new institutional requirements. Because intangible assets have spillovers, solving the collective-action problem becomes more important. The spillovers create new demands on institutions relating to property rights. If the benefits of

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the institutions that govern how cities are built and managed—in particular, the land-use and planning systems. Note, too, that if the combination of intangible assets is important, so potentially are influence and haggling costs. These costs manifest themselves in litigation and thickets around patents, but more constructively the social norms

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businesses involves a claim on the firm’s assets and significant institutional lock-in. A move to a world in which more firms have mainly intangible assets will require institutional innovation in business finance. To a certain extent, sunkenness is a consequence of inadequate property rights. For example, if there is

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promoting intangible investment. One example is intellectual property rules, which we discuss in chapter 4. Intellectual property rules help mitigate the problem of spillovers with intangible assets, but as intangibles become more important, the costs of patent thickets increase and the incentives for rights holders to lobby governments to change the rules

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tangible assets, from vehicles to machine tools, are mass-produced, and they can be bought and sold in secondary markets. This is less true for intangible assets, particularly those relating to innovation. The large synergies they exhibit when they are combined in the right way means that an intangibles-rich economy would

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effort to invent them in the first place. Put another way, the government overcomes the spillover problem by granting inventors a temporary monopoly over the intangible asset they have created, banning others from taking advantage of the spillover. But there is a well-documented literature of problems with patents and copyrights. Take

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sector have a debt-to-book value of almost 95 percent. It would, of course, be wrong to say that intangibles-intensive firms and even intangible assets themselves can never be financed with debt. Large-scale commercial lenders do not always or exclusively lend against collateral. They also use loan covenants related

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of exposures were collateralised by property and/or debentures, including charges over plant, equipment, and vehicles. These lending practices create problems for businesses reliant on intangible assets and with few tangible ones. Giovanni Dell’Ariccia, Dalida Kadyrzhanova, Camelia Minoiu, and Lev Ratnovski examined the composition of commercial bank lending in the United

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boomed (increasing from around 35 percent of bank balance sheets to 75 percent). Tellingly, they show that business lending fell the most in areas where intangible assets have grown. The implication is that the move to the intangible economy has contributed to the substantial change in commercial bank balance sheets towards real

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1990s. They provided two explanations. First, the accounting metrics used to identify glamour and value stocks no longer worked well, because many more businesses owned intangible assets that were not reflected in their balance sheets. Second, mean reversion, the wind in the sails of the value strategy, had slowed down. The rule

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good overview of the evidence), but the debate continues to rage. These two issues become more significant in an economy dominated by intangible assets. Consider spillovers. As we have seen, intangible assets often generate positive effects beyond the firm investing in them. Thus we might expect businesses to invest less in them than is

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bankers can exert a reasonable degree of control over business investment by simply raising or lowering the interest rate. But for a firm with abundant intangible assets, these mechanisms become less predictable. Because intangible capital is less easy to pledge as collateral with creditors, and because young intangibles-based firms often have

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financial system relies on no longer work well has several likely consequences. First, if it is harder for many businesses to obtain external finance for intangible assets, we would expect to see less intangible investment in the economy as a whole, and especially on the part of particular businesses—specifically, small and

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able to help the economy. Proposals The first challenge to address is how to create a better financial architecture to enable firms to invest in intangible assets. This requires a thoroughgoing change to the incentives and regulations we put on business finance. One important measure is to end the asymmetric tax treatment

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. How does competition affect prices in an intangibles-rich economy? The digital economy goes hand in hand with the growing importance of intangibles (recall that intangible assets include software and databases, for example). There is a lingering suspicion that competition might work differently online. After all, doesn’t the information that the

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more to the left in figure C.2. First, with more synergies the curve gets flatter. The more that a successful good requires combinations of intangible assets, the more costly is the lack of information. This relationship flattens the curve: at every information point, society can get fewer centralised goods. Second,

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can backfire, giving free rein to special interests. Indeed, lobbyists have a strong presence in fields such as intellectual property and the public funding of intangible assets. The other way to resist influence activities is less elegant from a design point of view but more flexible in the face of changing requirements

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35. Traina 2018. 36. Syverson 2019. 37. Haskel and Westlake 2017. 38. Davis 2018. 39. It is perfectly possible for a firm to have an intangible asset that does not involve a relationship: an expressive intangible evokes an emotion, so a design or work of art could evoke pathos, catharsis, awe, excitement

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covenants related to earnings. And Lim, Macias, and Moeller (2020) show that after an accounting change that booked intangible assets, borrowing rose; importantly, borrowing rose after the accounting change when identified intangibles assets rose, not all intangible assets. (Assets were identified by a record of the purchase price paid for them and consisted of things like

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trademarks, domain names, and mineral rights.) An unidentified intangible asset was acquisition goodwill. 9. Lian and Ma 2021. 10. Dell’Ariccia et al. 2017. 11. Kaoru, Daisuke, and Miho 2017. 12. Lim, Macias, and

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111 (3): 871–98. https://doi.org/10.1257/AER.20171742. Arquié, Axelle, Lilas Demmou, Guido Franco, and Irina Stefanescu. 2019. “Productivity and Finance: The Intangible Assets Channel—A Firm Level Analysis.” OECD Economics Department working paper no. 1596. https://doi.org/10.1787/d13a21b0-en. Arrow, Kenneth. 1962. “Economic Welfare and

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://doi.org/https://doi.org/10.1787/de0378f3-en. Corrado, Carol A., Jonathan E. Haskel, and Cecilia Jona-Lasinio. 2021. “Artificial Intelligence and Productivity: An. Intangible Assets Approach.” Oxford Review of Economic Policy, forthcoming. Available at https://spiral.imperial.ac.uk/bitstream/10044/1/89036/2/Innov_J_curve_17Mar21.pdf. Cowen

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.org/reporter/2017number4/value-soft-skills-labor-market#N_6_. Demmou, Lilas, Irina Stefanescu, and Axelle Arquie. 2019. “Productivity Growth and Finance: The Role of Intangible Assets-a Sector Level Analysis.” OECD Library. https://doi.org/10.1787/e26cae57-en. Demsetz, Harold. 1967. “Toward a Theory of Property Rights.” American Economic Review

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, vol. 31, edited by Martin Eichenbaum and Jonathan A. Parker, 213–63. Chicago: University of Chicago Press. Kaoru, Hosono, Daisuke Miyakawa, and Miho Takizawa. 2017. “Intangible Assets and Firms’ Liquidity Holdings: Evidence from Japan.” Research Institute of Economy, Trade and Industry discussion paper no. 17053. https://ideas.repec.org/p/eti/dpaper

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or Restricting Competition? Kalamazoo, MI: W.E. Upjohn Institute. https://doi.org/10.17848/9781429454865. Kling, Arnold, and Nick Schulz. 2009. From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity. New York: Encounter Books. Kortum, Samuel, and Josh Lerner. 2000. “Assessing the Contribution of Venture Capital to

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Journal of Law and Economics 33 (1): 1–25. https://doi.org/10.1086/467198. Lim, Steve C., Antonio J. Macias, and Thomas Moeller. 2020. “Intangible Assets and Capital Structure.” Journal of Banking and Finance 118 (September): 105873. https://doi.org/10.1016/j.jbankfin.2020.105873. Lindberg, Erik. 2013. “From Private

Valuation: Measuring and Managing the Value of Companies

by Tim Koller, McKinsey, Company Inc., Marc Goedhart, David Wessels, Barbara Schwimmer and Franziska Manoury  · 16 Aug 2015  · 892pp  · 91,000 words

(725) 3,685 (1,297) 2,957 (1,540) 2,907 Invested capital Operating working capital Property, plant, and equipment, net Capitalized operating leases Intangible assets, capitalized software Other operating assets, net of liabilities Invested capital (excluding goodwill)3 2,119 17,621 5,684 388 (1,060) 24,752 1

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sheet mixes together operating assets, nonoperating assets, and sources of financing. The income statement similarly combines operating profits, interest expense, the amortization of acquired intangible assets, and other nonoperating items. To prepare the financial statements for analyzing economic performance, you need to reorganize the items on the balance sheet, income statement

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976 9,056 4,917 5,044 533 780 11,274 2,908 5,460 522 793 9,683 Net PP&E Goodwill Other intangible assets, acquired1 Other intangible assets, capitalized software Restricted cash Investments2 Deferred income tax assets Postretirement benefit assets 3 Other noncurrent assets Total assets 17,621 2,101 197

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operating liabilities); fixed assets (net property, plant, and equipment); net other long-term operating assets (net of long-term operating liabilities); and, when appropriate, intangible assets (goodwill, acquired intangibles, and capitalized software). Exhibit 9.5 demonstrates this line-by-line aggregation for UPS and FedEx. In the following subsections, we examine

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investments in software. Under certain restrictions, these investments can be capitalized on the balance sheet rather than immediately expensed. Although it is labeled as an intangible asset, treat capitalized software no differently than property and equipment; treat amortization as if it were depreciation; and treat investments in capitalized software as if

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they were capital expenditures.4 Only internally generated intangible assets, however, should be treated in this manner. Acquired intangibles require special care and are discussed separately. Other operating assets, net liabilities If other long

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the company periodically tests the level of goodwill to determine whether the acquired business has lost value. If it has, goodwill is impaired (written down). Intangible assets (which differ from goodwill in that they are separable and identifiable) are amortized over the perceived life of the asset. REORGANIZING THE ACCOUNTING STATEMENTS: IN

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709 5,133 Valuation allowance Deferred-tax assets, net (205) 3,910 (220) 6,459 (251) 4,882 Liabilities Property, plant, and equipment Intangible assets, capitalized software 1 Intangible assets, acquired 2 Other Deferred-tax liabilities Net deferred-tax assets (liabilities) 2011 2012 2013 259 (205) 54 258 (220) 38 279 (251) 28

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carryforwards Valuation allowance Loss and credit carryforwards, net of taxes Insurance reserves Vacation pay accrual Stock compensation Other deferred-tax assets Property, plant, and equipment Intangible assets, capitalized software1 Other deferred-tax liabilities Operating deferred-tax assets (liabilities) 696 737 765 208 209 224 211 159 70 635 708 709 (3,

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) (1,023) (554) (617) (651) (3,235) (3,359) (3,491) Nonoperating deferred taxes Pension and postretirement benefits 2,106 4,608 3,086 Intangible assets, tax gross-up Intangible assets, acquired2 (73) (66) (93) Net deferred-tax assets (liabilities) (1,202) 1,183 (498) (3,607) (3,624) (3,613) (878) (969)

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. 2 Estimated at the marginal tax rate times acquired intangibles. pensions), debt (such as implicit interest), or debt equivalents (such as restructuring expenses). 3. Intangible assets, gross-up: As discussed earlier, deferred-tax liabilities related to amortization of acquired intangibles should be netted against acquired intangibles. Exhibit 9.8 uses the

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long-term operating provisions, nonoperating restructuring provisions, and provisions created 32 One exception to this conservatism is the development of software. Although software is an intangible asset, GAAP and IFRS accounting allows for certain software investments to be capitalized and amortized over the life of the asset. For UPS, these investments are

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we then discovered that the ROIC included goodwill, and the expected improvement in ROIC would be caused solely by 2 Goodwill and acquired intangibles are intangible assets purchased in an acquisition. To be classified as an acquired intangible, the asset must be separable and identifiable, as in the case of patents.

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for the most common line items. The three primary operating line items are operating working capital, long-term capital such as net PP&E, and intangible assets related to acquisitions. Nonoperating line items include nonoperating assets, pensions, and deferred taxes, among others. We discuss each category next. MECHANICS OF FORECASTING 245

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intellectual property do not recognize their investment on the balance sheet unless acquired. For more on how to compute invested capital for companies with large intangible assets, see Chapter 21. EVALUATING OTHER APPROACHES TO CONTINUING VALUE 273 EXHIBIT 12.11 Continuing-Value Estimates for a Sporting Goods Company Continuing value, $ million

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amortization of intangibles from the calculation of ROIC and free cash flow. It is noncash, and, unlike depreciation of physical assets, the replacement of intangible assets is already incorporated in EBITA through line items such as marketing and selling expenses. So using EBITA is preferred, both from a logical perspective and

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because it leads to more comparable multiples across peers. To illustrate the distortion caused by amortization of acquired intangible assets, we compare two companies with the same size and underlying operating profitability. The difference is that Company A achieved its current size by acquiring

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To avoid forming a distorted picture of their relative operating performance, use EV-to-EBITA multiples. In limited cases, companies will capitalize organic investments in intangible assets, just as UPS capitalized its software development costs (Chapter 9), and then amortize them over their useful life. In these cases, you should separate

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company generated $2,000 million in domestic earnings before interest, taxes, and amortization (EBITA) and $500 million in EBITA from foreign operations. The company amortizes intangible assets held domestically at $400 million per year. Thus, domestic earnings before interest and taxes (EBIT) are $1,600 million. The company holds debt locally

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2,400) Deferred tax assets, net of liabilities (5,850) (5,900) 2. Acquired intangibles (a DTL): When a company buys another company, it recognizes intangible assets on its balance sheet for items such as patents and customer lists.10 Since these assets are amortized on the income statement but are not

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operating taxes (computed in Exhibit 18.5) already exclude the amortization tax benefit in calculating NOPLAT, no adjustment is required for deferrals related to these intangible assets. Instead, treat deferred taxes related to amortization of intangibles as nonoperating. 3. Pension and postretirement benefits (a DTL): In the United States, the government

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valuation more transparent and less prone to error. 10 Under current accounting standards, the premium paid in an acquisition is split between goodwill and other intangible assets (acquired intangibles). Acquired intangibles include identifiable and separable assets like patents, copyrights, product formulas, and customer lists. Unlike goodwill, acquired intangibles are amortized over

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for this mismatch, the company creates a deferred-tax liability when it makes the acquisition. To keep the balance sheet balanced, the company also increases intangible assets (known in accounting as “grossing up”) by the size of the new DTL. Since the grossed-up intangible and deferred-tax liability are purely

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corresponding nonoperating account (as for pensions and convertible bonds), valued separately (as for net operating loss carryforwards), or ignored as an accounting convention (as for intangible assets). For each deferred-tax account, there are four valuation methodologies: 1. Value as part of NOPLAT and subsequently enterprise value. Any DTA or DTL

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1 Statement of Financial Accounting Standards (SFAS) No. 141(R), Business Combinations, requires that companies recognize acquired in-process R&D as an indefinite-lived intangible asset. Before 2009, companies expensed purchased in-process R&D. SFAS 141(R) brings in-process R&D accounting into line with International Financial Reporting Standards

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(2,659) (2,349) (2,174) 4,963 4,900 4,969 SG&A expense R&D expense Royalty expense Amortization expense Goodwill impairment charges Intangible-asset impairment charges Contingent consideration expense Restructuring charges Litigation-related charges Gain on divestiture Operating income (loss) (2,487) (2,535) (2,674) (895) (886)

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forecasts accordingly. A comprehensive list of nonoperating items and one-time charges is impractical, but the following items are the most common: amortization of acquired intangibles; asset write-offs, including write-offs of goodwill and purchased R&D; restructuring charges; litigation charges; and gains and losses on asset sales. Since each

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142 and IFRS 3. The premium paid for acquisitions is no longer classified solely as goodwill, but instead is separated into intangible assets and goodwill. To be classified as an intangible asset, the asset must be separable and identifiable. If it is not, it is classified as goodwill.5 Goodwill is 3 P

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EBITA (not EBIT) to determine operating profits. Since amortization is excluded from operating profit, remember to include the cumulative excluded amortization in your total for intangible assets on the balance sheet. A corresponding entry should be made to equity (titled “cumulative amortization”) to balance total funds invested. Why not amortize intangibles,

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particularly since we include depreciation in our calculation of ROIC? The idea of recognizing an intangible asset and then amortizing its use over a useful life is a good one. Yet current accounting standards do not allow companies to take this approach

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its financial statements, once through selling, general, and administrative (SG&A) expenses and again through amortization. In fact, to expense the creation of new intangible assets while amortizing old intangibles would be tantamount to including both capital expenditures and depreciation on the income statement, a clearly undesirable characteristic. For valuation purposes

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acquired intangibles at their original values. To do this, compute operating profit before amortization, and add cumulative amortization to the current value of goodwill and intangible assets. Exhibit 19.3 demonstrates the effect of amortizing acquired intangibles on margins for three companies in the pharmaceuticals industry. Based on EBIT margin, it

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however, can be attributed to the amortization of acquired intangibles. In 2009, Merck acquired Schering-Plough for $41 billion, leading to the recognition of substantial intangible assets and hence significant amortization. Bristol-Myers Squibb also has been an active acquirer, but on a smaller scale. Because Merck’s and Bristol-Myers Squibb

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’s EBITs each include investments required to replenish intangible assets (via SG&A) as well as an amortization charge from acquisitions, this double penalty artificially lowers each company’s EBIT. Stripping out amortization, Merck

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builds a plant or purchases equipment, it capitalizes the asset on the balance sheet and depreciates it over time. Conversely, when a company invests in intangible assets such as a new production technology, a brand name, or a distribution network, the entire outlay must be expensed immediately. In sectors such as

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and ASML, had to invest in research projects over many years to build and sustain their current product offerings. The economics of investments in intangible assets are very similar to those of investments in tangible assets. Their treatment in ROIC should therefore also be the same to ensure that it adequately

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Intangible Resources In general, capitalizing intangible investments will lead to lower ROIC. For mature companies with stable revenues and investment spending, the amortization charges for intangible assets are likely to be close to the amounts expensed. As a result, NOPLAT might not be affected that much by capitalizing the expenses. But

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borrowings Employee benefits Provisions Other items Total (620) (536) 13 19 (607) (517) 122 2 383 108 47 662 119 1 315 101 59 595 Intangible assets Tax loss carryforwards (1,535) (1,234) 238 220 Total net assets (liabilities) (1,242) Recognized as assets Recognized as liabilities Total net assets (

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in the 2010 balance sheet to €112 million in 2013. We treat these as nonoperating liabilities that are deducted from other financial assets.4 Intangible assets We split intangible assets as reported into operating intangibles and goodwill and acquired intangibles, so we can estimate return on invested capital (ROIC), including and excluding goodwill

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acquired intangibles. 5 Excludes changes in operating deferred-tax liabilities included in operating cash taxes. 6 Excludes changes in deferred-tax liabilities related to acquired intangible assets. REORGANIZING FINANCIAL STATEMENTS 527 EXHIBIT 24.12 Heineken: Balance Sheet and Invested-Capital Items Affected by Restatements € million 2012 reported 2012 restated 8,792

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17,465 (1,535) (1) 11,691 1,632 409 (676) 11,734 1,575 410 (662) 1 Balance sheet Property, plant, and equipment Intangible assets Deferred-tax assets Total assets restatement effect Trade and other payables Employee benefits Provisions Equity attributable to equity holders of the company Total liabilities and

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1.5 2.5 4.0 – – – 4.0 Operating expense ratios, % Raw materials/revenues Personnel expense/revenues Depreciation/assets Amortization of operating intangibles/assets Amortization of acquired intangibles/assets 63.8 15.0 14.8 44.2 9.7 64.0 16.2 12.2 26.5 5.6 64.5 15.8

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be able to retain the 2013 level of 44 percent. We also keep the level of other noncurrent operating assets (advances to customers) and operating intangible assets (software) at their 2013 levels of 1.6 and 1.1 percent of revenues, respectively. r Nonconsolidated investments (investments in associates and joint ventures):

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acquired intangibles. 5 Excludes changes in operating deferred-tax liabilities included in operating cash taxes. 6 Excludes changes in deferred-tax liabilities related to acquired intangible assets. 542 CASE STUDY: HEINEKEN EXHIBIT 24.24 Heineken: Forecast of Economic Profit € million Historical Forecast Before goodwill 2013 2014 2015 2016 2017 2018 After

J.K. Lasser's Your Income Tax

by J K Lasser Institute  · 30 Oct 2012  · 2,045pp  · 566,714 words

depreciation except to the extent first-year expensing applies (42.3). IRS regulations provide safe harbors, including a “12-month” rule, for expenditures relating to intangible assets or benefits (40.3). - - - - - - - - - - Caution Penalties and Fines Penalties or fines paid to a government agency because of a violation of any law are not

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private ruling, the IRS did not allow a developer to depreciate street improvements that had been turned over to a city. The improvements were an intangible asset that improved the developer’s access to its real estate projects, but this asset had an unlimited life. There was no determinable useful life because

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have created that intangible. For example, a licensee who contracts for the use of know-how may amortize capitalized costs over 15 years. The following intangible assets are not Section 197 intangibles. (1) interests in a corporation, partnership, trust, or estate; (2) interests under certain financial contracts; (3) interests in land; (4

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over the face amount of an obligation that may be deducted under the rules in 4.17. Amortization of intangibles. Writing off an investment in intangible assets over the projected life of the assets; see 42.18. Amount realized. A statutory term used to figure your profit or loss on a sale

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of publicly traded securities. Dealers may not use the installment method. Investors with very large installment balances could face a special tax; see 5.21. Intangible assets. Intangible assets that come within Section 197, such as goodwill, are amortizable over a 15-year period; see 42.17. Inter vivos or lifetime trust. A trust

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malpractice mortgage, premiums plans policies, tax-free exchanges of reimbursements split-dollar Insurance agents, advances against unearned commissions Insurance proceeds disaster losses taxable tax-free Intangible assets amortization for drilling costs licensing of not Section 197 intangibles personal property like-kind exchanges of passive activity rules Intellectual property, donating Intelligence officers, ownership

The Economics of Enough: How to Run the Economy as if the Future Matters

by Diane Coyle  · 21 Feb 2011  · 523pp  · 111,615 words

is a serious matter. Apart from their buildings and computers, banks have no physical assets. Their stock market value is entirely an indicator of their intangible assets—which are, more or less, a measure of the extent to which they are trusted. Until the later part of the twentieth century, other companies

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creative property such as movies and music, brand values and “organizational capital” for example.21 The aim of the work is to measure investment in intangible assets, but the BEA’s report notes that the main barrier is the absence of the underlying measurements—for example, businesses don’t record “investment in

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, 252; Leipzig marches and, 239; one-child policy and, 95–96; Velvet Revolution and, 239 community: civic engagement and, 140–41; globalization and, 148–49; intangible assets and, 149–52, 157, 161 (see also trust); public service and, 295; Putnam on, 140–41, 152–54 commuting, 45–47 Company of Strangers, The

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Depression and, 3, 28, 35, 61, 82, 150, 208, 281; growth debt and, 85–86; historical perspective on, 3–4; institutional blindness to, 87–88; intangible assets and, 149–50; intrusive regulatory practices and, 244; pension burden of, 92–95; as political crisis, 8–9; statistics of, 145; stimulus packages and, 91

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Golden Rule, 93 Goldman Sachs, 145 goods and services, 7, 10, 282; experience, 229; government budget and, 191, 193; happiness and, 24, 35–36, 40; intangible assets and, 199–201; luxury, 190–91; measurement and, 188, 191, 198; missing markets and, 229; music and, 194–98; nature and, 82; positional, 190; posterity

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, 257–58, 277; statistics and, 245; technology and, 244–46, 251–54, 257–63 (see also technology); values and, 240–42, 246–47, 258–60 intangible assets: measurement and, 199–201, 204–6; satellite accounts and, 38, 81, 204–6, 271; social capital and, 149–52, 157, 161, 199–201 InterAcademy Council

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, 188–93, 200, 207; hedonic techniques and, 274; importance of, 184–85, 187–89; of inequality, 126; innovation and, 183, 196, 201–8, 273–74; intangible assets and, 199–201, 204–6; labor and, 189–99; less publication of, 271–72; living standards and, 13, 65, 78–79, 106, 113, 136, 139

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Smith, Adam, 119–20, 209, 221, 255 Smith, Vernon, 215 social capital, 8, 12, 17; definition of, 152–53; fairness and, 116, 121, 139–43; intangible assets and, 149–52, 157, 161, 199–201; measurement of, 154, 185; policy recommendations for, 267, 271, 273, 276; Putnam on, 152–54; trust and, 5

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, 162, 172, 175–76, 247; gross domestic product (GDP) and, 157, 160; growth and, 152–56, 160, 174; health issues and, 172; innovation and, 157; intangible assets and, 149–52, 157, 161; measurement of, 152–57; morals and, 149, 174; paradox of prosperity and, 174; Pew surveys and, 140; politics and, 154

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, 212, 218, 232; growth and, 13, 210–13, 222, 231–36; innovation and, 210, 216, 220, 236; institutions and, 240–42, 246–47, 258–60; intangible assets and, 149–52, 157, 161, 199–201; market failure and, 226–30; measurement and, 209, 212–13; merits of markets and, 211–17; morals and

The Great Reversal: How America Gave Up on Free Markets

by Thomas Philippon  · 29 Oct 2019  · 401pp  · 109,892 words

Organization, about initial public offerings and mergers, and about the growth of young firms. We will introduce the fundamental law of investment, the concept of intangible assets, and the evolution of productivity. CHAPTER 1 Why Economists Like Competition … and Why You Should Too THE BIG DEBATES in economics are about growth and

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price comparisons easier, and this leads to winner-take-all outcomes. Hypothesis of GlobalizationForeign competition leads to domestic consolidation. Hypothesis of Intangible AssetsThe growth of intangible assets explains the evolution of concentration, profits, and investment. It might seem strange at first to entertain the Much Ado about Nothing hypothesis as an explanation

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exclusive. It is obvious that foreign competition (from Mexico, China, and Japan) has affected some industries. It is also obvious that some firms have amazing intangible assets. We have already discussed Amazon. We will study Apple, Facebook, Google, and Microsoft in Chapters 13 and 14. In all likelihood, therefore, the truth is

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percent of Finnish exports.d We should be careful, then, when comparing consolidated firm revenues (including foreign sales) to domestic GDP. Finally, the Intangible Assets hypothesis contains several ideas. Intangible assets are nonphysical in nature. They include intellectual property, like patents and copyrights, but extend to vague or fuzzy assets, such as brand recognition

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. Economists Nicolas Crouzet and Janice Eberly (2018) argue that industry leaders are often firms that are very good at producing intangible assets. In fact, they argue that this is how they became leaders in the first place. The attractive feature of a theory of

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intangible assets is that it can explain concentration both through increasing productivity (superstar firms) and through decreasing domestic competition since intangible assets can create barriers to entry. To test this idea, we will look carefully at intangible investments

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3.3 are consistent with decreasing domestic competition. They are also consistent with the hypotheses of the rise of superstar firms and the role of intangible assets if we assume that the comparative advantages of leaders have become more persistent. Why that would be the case is unclear, however. I have often

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heard arguments that intangible assets are subject to higher increasing returns to scale than tangible assets, but I have not seen convincing evidence that this is the case. In fact

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analyzed so far allow us to narrow our focus down to three hypotheses: consolidation driven by foreign competition, increasing efficiency of leaders, perhaps driven by intangible assets, or decreasing domestic competition. We have shown that globalization is a powerful explanation of the trends observed in the manufacturing sector, and in industries exposed

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to foreign competition more broadly. In the rest of the economy, however, we are left to consider star firms, decreasing domestic competition, and intangible assets as the leading theories. Two hypotheses can explain increasing concentration and increasing profit margins—the Rise of Superstar Firms and Decreasing Domestic Competition. They have

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successful is Tobin’s q at explaining investment in practice? It depends on three main issues. First, you must measure capital and investment—in particular, intangible assets—correctly, using the methods of Peters and Taylor (2016), for instance. Second, q assumes that the market is rational, or at least that the managers

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Eberly, that intangible investment might be partly responsible for the trends that we have discussed so far. Some firms might be really good at accumulating intangible assets. This might give them high profits and isolate them from competition. Tangible investment is easily measured: more machines, more computers, more workers, more warehouses, more

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, chemical formulas, databases, artistic value, special employee training, design, processes, and brand recognition. Intangible assets are not just about information technologies, however. Some intangible assets rely on computers—software and databases—but some are embedded in people, organizations, and brands. Intangible assets are also important in classic, “old-fashioned” manufacturing industries. Economists are pretty good at

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. You can easily imagine why this is not as reliable a measure when compared to an outside purchase. The impetus for improving our measure of intangible assets came in the early 2000s from a group of economists led by Carol Corrado, Daniel Sichel, Charles Hulten, and John Haltiwanger (2005). Broadly speaking, they

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divided intangible assets into three categories: computerized information, innovative property, and economic competencies. Computerized information that can be correctly captured as investment includes software and database development, but

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decline in investment applies to the sum of the two types of investment. There has been an important shift in the composition of investment toward intangible assets and away from tangible ones. If we study the two categories separately, we see that both tangible and intangible investments have been weak in recent

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investment gap.d FIGURE 4.5  Growth rate of intangible capital stock: intellectual property products We have thus found support for the Intangible Assets hypothesis. There has been a shift toward intangible assets, and the investment gap is smaller for intangible investment than for tangible investment. The great boom of intangible investment, however, was

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capital (which itself is a complex explanation involving measurement problems, efficiency gains, and barriers to entry). c  See Haskel and Westlake (2017) for more on intangible assets. d  This is consistent with figure 5.6 in Haskel and Westlake (2017): “it turns out that the effect of including previously unmeasured intangibles is

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various theories. The theory of “star” firms argues that concentration reflects the increasing productivity of industry leaders. The intangible hypothesis argues that the accumulation of intangible assets explains the evolution of concentration, profits, and investment. The decreasing domestic competition theory argues that domestic competition has declined and that, in many industries, firms

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show signs of returns to scale significantly above one. There is also no reason to think that intangible assets are more likely to create positive externalities than tangible ones. Patents are a prime example of intangible assets. Many patents today, and most of the litigation surrounding them, come from patent trolls. They abuse the

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, 217–218 initial public offerings (IPOs), 82 innovation, ix–x; and US per-capita economic growth rate, 15–16; competition’s impact on, 19–20 Intangible Assets hypothesis, 49, 51, 53, 75, 97 intangible investment, 72–75 intellectual property products (IPP) stock, 74–75 International Comparisons Program (ICP), 117 international trade, 24

Infonomics: How to Monetize, Manage, and Measure Information as an Asset for Competitive Advantage

by Douglas B. Laney  · 4 Sep 2017  · 374pp  · 94,508 words

: removal. The removal or dumping of physical assets is a last resort, and not much in the realm of sustainability. But with non-physical or intangible assets, removing unneeded ones is easy and doesn’t harm your or anyone else’s information ecosystem. But it can help with lessening personnel, storage, processing

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are responsible for taking advantage of them. Because technologies and business models evolve rapidly, organizations must continually evolve their information management practices and competencies. Other Intangible Assets Finally, let’s examine one last class of asset: intangibles. Increasingly we compete in a marketplace of ideas. These ideas manifest not in tangible things

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Information Asset Management We’ve taken a protracted journey through the worlds of supply chains and ecosystems, various IT processes and standards, physical, financial, and intangible asset management approaches, and even library science. But not just for fun. These well-honed industry-standard methodologies, capability models, and standards and checklists offer tremendous

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. These changes, they argued, had rendered classic accounting practices all but ineffectual at gauging what has become the largest source of value in businesses today: intangible assets. Steve M. Samek, of Arthur Andersen, lamented that balance sheets and income statements “form the backbone of today’s accounting system” but fail to “capture

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it. Over a decade and a half since this hearing, what has been done to improve transparency or to formally account for information and other intangible assets while the economy has become ever more digital? Not much, according to Tom Linsmeier, retiring board member of Financial Accounting Standards Board (FASB), who said

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: “[T]he current accounting model fails to provide much information on most internally developed intangible assets, resulting in an often-increasing market to book ratio for these organizations and leaving users with little financial reporting information to make their valuation assessments

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that their company’s information asset value is represented under goodwill or elsewhere on the balance sheet.7 Despite meeting all the criteria of an intangible asset, information is absent as an asset class on the balance sheet. Even among enterprises whose core business is the buying and selling of information (e

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not their information assets. Yet, these assets are either their primary source of revenue generation, or increasingly and tangibly contribute to their top line. Even intangible assets, such as copyrights, patents, and trademarks, are recognized and reported. Therefore, the growing disparity between corporate book values and market values is in large part

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quantify information’s future potential. Moreover, it seems clear that information meets the formal criteria of an intangible asset as defined by accounting standards. The International Accounting Standards (IAS)16 defines the critical attributes of an intangible asset as: Lacking physical substance (and non-monetary), Identifiability (capable of being separated and sold, transferred, licensed

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reportable assets (specifically those internally generated) states: Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets.20 In this single short sentence, the accounting aristocracy basically says, “Although these valuable things may meet the criteria of an asset, we are not

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non-GAAP footnotes regarding the valuation of certain intangibles. One of the key items of contention regards proving the ownership and/or control of certain intangible assets. This is not just an accounting issue—it’s one of serious legal and operational concern to many organizations. Who owns the information you generate

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value of each active account is about $211. 11 “Ocean Tomo Releases 2015 Annual Study of Intangible Asset Market Value,” Ocean Tomo Insights Blog, 05 March 2015, www.oceantomo.com/blog/2015/03-05-ocean-tomo-2015-intangible-asset-market-value/. 12 “Asset,” Merriam-Webster, accessed 09 February 2017, www.merriam-webster.com/ C

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.ifrs.org/IFRSs/Documents/Technical-summaries-2014/Conceptual%20Framework.pdf. 16 “IAS 38—Intangible Assets,” IASPlus, Deloitte, www.iasplus.com/en/standards/ias/ias38. 17 Additionally, information meets each of the IFRS criteria for intangible assets. 18 “Technical Summary, IAS 38 Intangible Assets,” IFRS, 01 January 2014, www.ifrs.org/IFRSs/Documents/Technical-summaries-2014/IAS

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%2038.pdf. 19 IFRS criteria for intangible assets include: a) an intention to complete and use or sell it, b) an

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there is a market for it, d) an ability to measure reliably the expenditure attributable to it during its development. 20 “Technical Summary, IAS 38 Intangible Assets,” IFRS, 01 January 2014, www.ifrs.org/IFRSs/Documents/Technical-summaries-2014/IAS%2038.pdf. 21 It is generally understood that “similar items in substance

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Combinations,” IFRS, 18 February 2011, http://ec.europa.eu/internal_market/accounting/docs/consolidated/ifrs3_en.pdf. 23 “Discussion Paper, Initial Accounting for Internally Generated Intangible Assets,” The Office of the Australian Accounting Standards Board, 2008, www.saica.co.za/Portals/0/Trainees/documents/DPInitialAccountingInternallyGeneratedIntangibleAssets.pdf. 24 “FASB Invitation to Comment, Agenda

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asset definition specifies that an asset must be controlled by some entity. Accountants assert that control is easier to establish than is ownership, particularly for intangible assets—so when control alone can be ascertained for something, it is most often afforded asset status. Control must be asserted or demonstrable via past events

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with some PII. To further establish the control aspect of an asset, accounting standards require the condition that it is identifiable. This applies specifically to intangible assets wherein there is some question of separability—meaning that they are not inexorably bound to another asset or unable to be quantified. International Accounting Standard

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38 (IAS 38) details the requirements for identifying and capitalizing intangible assets. It defines intangible assets as “non-monetary assets which are without physical substance.” The standard further specifies that recognizable intangibles must be “identifiable (either being separable or arising

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and negative business impact if lost, stolen, or damaged. Accountants prefer this method as a more conservative and less volatile approach for initially valuing most intangible assets. However, some factors require estimation and subjectivity. Remember that these costs most likely are expensed already, so the CVI merely expresses the value of information

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current information-driven society and increasingly digitalized world, sentiments are shifting from the economics of tangible assets to the economics of information—“infonomics”—and other intangible assets. I have relegated the examination of information economics toward the end of this book, not just because it is the “-nomics” in the “infonomics” portmanteau

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, 107, 113, 161, 236, 246, 265, 287, 289, 298, 301 innovation and digitalization, value 265 Instagram 34 Institute of Electrical and Electronics Engineers (IEEE) 147 intangible assets 168–9 integrity 248 intellectual property (IP) 62, 116, 128, 130, 168, 176, 181, 230–1, 288 International Accounting Standards Board (IASB) 214 International Accounting

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, information as Pacioli, Luca 210 Panchmatia, Nimish 43 Patel, Ash 134 patent 1, 19, 28; algorithm 239nn17–18; applications 230–1, 260; economic value 229; intangible asset 168, 207; intellectual property 128, 130 Patrick, Charlotte 34 People Capability Maturity Model (P-CMM) 165–6 people-process-technology 99 Pepsi 40 performance metrics

The 100-Year Life: Living and Working in an Age of Longevity

by Lynda Gratton and Andrew Scott  · 1 Jun 2016  · 344pp  · 94,332 words

right investment of assets across a long life is not straightforward. The 100-Year Life presents a provocative and sophisticated analysis of both tangible and intangible assets and, in a series of fascinating scenarios, shows how it can be done. In doing so, Gratton and Scott have created a classic. Martin

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being a human. The gift of a long life is fundamentally a much more intangible gift. In this chapter we focus on the priceless – on intangible assets. Intangible assets play a crucial role in all our lives. For most of us, while money is indeed important, it is not an end in itself. We

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you fail to invest by not keeping contact with a friend or not refreshing your knowledge, then they will eventually depreciate and possibly even disappear. Intangible assets differ significantly from tangible assets such as housing, cash, or savings in the bank. Tangible assets have a physical existence and so tend to

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are therefore fairly straightforward to understand and monitor: bank statements can be checked; the price of a house verified on the internet; pensions followed carefully. Intangible assets such as friendships and family, physical and mental health, skills and knowledge lack this obvious physical existence, which creates challenges in how they are measured

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measure many aspects of daily behaviour such as miles walked, time spent talking with friends and so forth – will add to the sophistication with which intangible assets can be measured. So some intangibles can be directly measured quantitatively or through a proxy, some only qualitatively (increasing/decreasing), while others remain elusive to

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. These are important inter-linkages and getting the balance right is crucial for planning for a 100-year life. Asset-rich Given this definition of intangible assets, the list of possibilities to consider is potentially huge. For instance, there is evidence that beauty is an important asset. Labour economist Daniel Hamermesh

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studies that document the impact of gender and racial characteristics on income. According to the earlier definition, each of these characteristics could count as an intangible asset – they are capable of providing a flow of benefits over long periods of time and they cannot be physically separated, priced and traded. Clearly

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multi-stage life. 1. Productive assets Productive assets are those intangibles that support productivity at work and boost income and career prospects. Of course, many intangible assets indirectly affect working capability – when you are ill or unhappy in your relationships then your work will undoubtedly suffer; however here the focus is on

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company is not held in specific physical items or tangible assets, such as the factories and shops they may own. Instead it is located within intangible assets like brand or intellectual property rights. For example, the brand ‘Apple’ is estimated to be worth substantially more than $100 billion. Although laboratories, factories

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living. What you eat, how much you eat, and whether you take regular and specific exercise are all important aspects of your investment in intangible assets. Over time medical advice and knowledge will continue to shift and develop, so it will be important to invest time in learning about health developments

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modelled the tangible assets of Jack, Jimmy and Jane, and considered how growing longevity affects their finances. Now we review their productivity and vitality intangible assets. Tracking intangible assets is more complicated than financial assets because they are so difficult to measure with any accuracy and therefore to value. Stock market analysts can use

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building tangible assets, especially during his second working stage. In his ‘traditional’ household relationship, it is his wife Jill who is tending to the intangible assets during this period by caring for the children and connecting the family to the community and friends. The combination of both their actions and motivations

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adult members of a household working helps finance savings and pensions, but of course it raises the question of how the household then maintains its intangible assets. The other intangible imbalance that is clear from Jack’s three-stage life is just how little investment is happening in the second stage.

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transitions in her life will not be forced upon her by external market circumstances, but rather she will instigate them in order to maintain her intangible asset base. Understanding how people make successful transitions has become a priority for groups of psychologists and sociologists. While there are a number of studies,

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have developed various ways in which Jimmy and Jane can structure a balanced life that both solves the financial challenges outlined earlier and supports their intangible assets. These descriptions of their possible future selves are not prescriptive, nor are they paths you should necessarily follow. In fact, one of the major

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and Jane. These scenarios create an opportunity to play through alternative sequencing or different transitions and to track the long-term balance between tangible and intangible assets. These different scenarios are a very concrete way to surface some of the key issues we all face, creating a base for you to

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the amount of hard work and focus they require, what are the advantages of these 4.0 scenarios? Both scenarios build and strengthen tangible and intangible assets; both lead to longer periods of high income and so help support a larger pension; both involve stronger productive assets and also vitality assets.

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scenario involves fairly modest income, and stretched over a long period of time would not help her accumulate sufficient funds for a pension. As for intangible assets, even for Jimmy this approach was stretching his productive assets – whether as a teacher or a consultant, his knowledge and experience were becoming increasingly

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of the world. We don’t expect Jane to invest in her tangible assets at this time. This is a period of heavy investment in intangible assets: creating options, building skills, establishing networks, and building the reputation and the behavioural currencies she will need to navigate the long years ahead. She

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to live modestly and without getting into debt. What separates this approach from simply hanging about is the focus Jane is placing on actively building intangible assets and options. Her productive assets are forming as she learns some basic working skills and how to build an online reputation. And unlike Jack,

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the archetypal stereotype of the three stage life, Jack works and his wife Jill looks after the home and family. This is how tangible and intangible assets are balanced, especially when viewed from Jack’s perspective. With a longer life, dual income households become more attractive as they can help finance

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the tradition of role specialization made this a great deal easier. In dual income households, the need to closely coordinate across the development of intangible assets and the sequencing of stages and transitions becomes a lot more complex and challenging. Managing transitions and change in a family requires mutual support and

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from the straitjacket of the three-stage life, we see new stages already emerging that create opportunities to craft a life that balances tangible and intangible assets, depreciation and accumulation. In a long life, you have the potential to build a cathedral rather than a shopping mall. We experience this potential

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and, through this, gaining a reputation for being action-orientated and able to overcome obstacles. The reputation won during this period could become a crucial intangible asset for the next stages of life. The website that describes their work, the hackathon they won, the Twitter stream of their activities, or the

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necessarily be the metric to measure the success of the independent producer, so it will be imperative to find ways to credentialize the attainment of intangible assets. This will also be important in building a reputation with larger firms. We expect that corporations will become more willing and adept at spotting

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work, right up to buying their IP or the business itself. Travelling light The major investment of the explorer and independent producer stage is in intangible assets – particularly transformational assets. So during these periods, financing is always going to be tricky. That is why developments in the technologies of the sharing

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: from education to employment, and from employment into retirement. Multi-stage lives have many more transitions. That is why we imagined that a new intangible asset based around transformation would become so crucial, and yet most people will have little in their repertoire of skills that prepares them for it. We

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this transition will overlap with a stage. At other times the transition is marked by a separate preparation activity, which is often about investing in intangible assets: boosting vitality by investing in recharging, or honing productive assets through re-creating. What transitions have in common is that they tend to unfold one

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transition is based on the simple motivation to recharge. After periods of working intensively, working long hours and acquiring financial assets, it is inevitable that intangible assets such as vitality will be depleted. Health may be poor, family and friendships may need reinvigorating, and mental appetite and stimulation may need boosting. Taking

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shifting networks and skills in order to move into a new stage. Financing transitions Transitions can be crucial periods in which to reinvest in valuable intangible assets – both productive and vitality. But they are inevitably times when tangible financial assets are also depleted. The result is that this depletion has to

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the timings of their transitions. While one member of the partnership was contributing to the financial assets, the other member could focus on building their intangible assets. As social experiments proliferate, we can imagine that these new stages – the explorer, the independent producer, the portfolio stage and transitions, whether recharging or

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friends and family is based on affection and not the prospect of a financial windfall. It is good to remember ourselves that it is our intangible assets – our family and friends, interests and passions – that are ultimately the greatest source of lifetime happiness. Answers to Financial Literacy Questions Q1: Just over

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will be a fundamental restructuring of time and that this evolution will be a result of the interaction of longevity, the need to invest in intangible assets and a longer-term historical trend towards a decline in working hours. The paradox of working hours In general, people are working fewer hours

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In this scenario, two periods of intense corporate activity are bounded by transitional phases where Jane is able to concentrate full-time on building her intangible assets. One of the audiences for whom this book was written are those who benefit from high levels of education and income and possess some market

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restructuring of time, we expect shifts in how time – and especially leisure – is used. A 100-year life puts enormous emphasis on developing key intangible assets that are built around family and friends, skills and knowledge, health and vitality. This requires investment: time with friends and family, time spent in education

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long-lived partnerships create the possibility of deep coordination, enabling the household to maintain an income flow while allowing for re-creation and regeneration of intangible assets. In the three-stage life, those people who were members of dual income households tended to either have one dominant earner and another secondary

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-year life are plans and experiments. Planning and preparation are crucial in ensuring that the flux of a long life doesn’t destroy financial and intangible assets. Experimentation is required so that possible selves are considered and examined. Together, these plans and experiments provide both purpose and individuality, and the psychological

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will live for 100 years? We would like to make six suggestions. First, there is a need to rebalance the corporate rhetoric between tangible and intangible assets. Right now the relationship between employer and employee is mediated by tangible assets: how much to pay, what pension to make available, car and

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start here but it could be that there are more corporate-specific intangibles that are appropriate. It would be useful to understand the contribution of intangible assets for each job category: will performing this job lead to the creation of intangibles such as productivity or vitality? Does it help the employee

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they are in their life. At any point, their motivation for working will reflect the multi-dimensional aspect of their life and the role that intangible assets play in it. Next, corporations need to support and acknowledge employee transitions and the profound requirements they will have to develop and protect their

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therefore have to offer support to those on a low income to fund transitions, prepare for future stages, and take time out to build their intangible assets. In many countries, the twentieth century saw the introduction of unemployment insurance, sickness and disability pay, maternity and increasingly paternity leave, and state pensions.

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familiar – so much that is focused on longevity concerns finances, earnings and savings. The real challenge, as we see it, is how to manage intangible assets in order to support a longer life. Currently, social policies aimed at inequality focus primarily on financial issues. With longer lives this focus will have

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are the losers.’ We do not explicitly deal with spiritual or religious issues in this book. For the religiously inclined, faith is clearly an overriding intangible asset that needs to be supported, nourished and invested in and would form the backbone of a good life. 4Vaillant, G. E., Adaptation to Life

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and here human skills and here medical diagnoses and here–here, here skills and knowledge and here–here Asia here assets here, here see also intangible assets; tangible assets; transformational assets assortative mating here–here, here Astor, Brooke here Autor, David here–here, here Baby Boomers here–here beauty here Becker,

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government policy and here–here health here, here–here income here–here, here–here life expectancy and here–here, here–here, here infant mortality here intangible assets here–here, here–here, here case studies here–here, here–here, here corporations and here–here endowed individual characteristics here, here independent producers and here

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R. here time here, here–here see also sabbaticals discretionary time here flexibility and here–here, here Industrial Revolution, the here–here, here–here, here intangible assets and here leisure and here, here, here–here, here–here, here–here restructuring here, here spare time here working hours here–here, here, here–here

The Finance Book: Understand the Numbers Even if You're Not a Finance Professional

by Stuart Warner and Si Hussain  · 20 Apr 2017  · 439pp  · 79,447 words

functionality is in place, as well as making us more agile in terms of our ability to adopt further change in the future. Within Greggs intangible assets note are software and assets under development. The note shows that during the last two financial years Greggs has invested £9.8 million in software

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and assets under development. 10. Intangible assets Group and Parent Company Software £’000 Assets under development £’000 Total £’000 Cost Balance at 29 December 2013 1,715 – 1,715 Additions 817 2

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, property and equipment) (see Chapter 9 Tangible fixed assets and depreciation) and intangible (for example trademarks, patents and goodwill) (see Chapter 10 Goodwill and other intangibles) assets as well as investments. Short-term assets Short-term assets are often referred to as current assets. They should usually convert back into cash quickly

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, is easier to spot and can usually be spotted in two places: The fixed asset note(s). The cash flow statement. Greggs plc illustration The intangible assets note can be found on page 311 of the Appendix. The property, plant and equipment note can be found on page 312 of the Appendix

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. The statements of cash flows can be found on page 299 of the Appendix. An extract from the intangible assets note follows: Software £’000 Assets under development £’000 Total £’000 Additions 817 2,992 3,809 An extract from the property, plant and equipment note

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cost of the asset rather than expensed. Amortisation Depreciation and amortisation are synonymous concepts. Amortisation is to intangible assets as depreciation is to tangible assets. Tangible means physical in nature whereas intangible assets are non-physical. Examples of intangible assets include patents and licenses (see Chapter 10 Goodwill and other intangibles). Optional detail Indefinite (or infinite

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there is some aspect of the land that is actually used up, for example, minerals that can be extracted Goodwill is a special class of intangible asset that is not subject to amortisation as it is considered to have an indefinite life (See Chapter 10 Goodwill and other intangibles). Fixed versus current

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report (Note 25) 25 Capital commitments During the year ended 2 January 2016, the Group entered into contracts to purchase property, plant and equipment and intangible assets for £2,010,000 (2014: £6,454,000). These commitments are expected to be settled in the following financial year. 10 Goodwill and other intangibles

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assets bought. Purchased goodwill, unlike inherent goodwill, is calculated and recorded in a company’s group accounts (see Chapter 16 Group accounting). Goodwill is an ‘intangible’ asset. Other intangibles commonly found in business include patents, trademarks and development costs. Need to know A company’s own (i.e. inherent) goodwill is never

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calculated because it is based on the amount actually paid by a company to buy another. In such situations, purchased goodwill is recorded as an intangible asset in the group accounts of the buyer (see Chapter 16 Group accounting). Example – purchased goodwill A clothing retailer purchases another shop in a nearby town

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,000 have been acquired for £300,000. The difference of £100,000 (£300,000 – £200,000) is purchased goodwill and would be recognised as an intangible asset in the books of the buyer. In practice The ‘value’ of goodwill must be agreed through negotiation between a buyer and a seller. In deciding

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growing divide between fair values and book values. A revaluation of fixed assets to fair value is therefore typically required to calculate goodwill. Other intangibles Intangible assets are fixed assets that have no physical form and include development costs, patents, trademarks and software. Intangibles are nevertheless ‘assets’ because they can generate benefits

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of goodwill is not ‘amortised’ or spread over future accounting periods. Amortisation and depreciation are synonymous concepts. Amortisation is to intangible assets as depreciation is to tangible assets. Unlike goodwill, an intangible asset will typically have a finite life and will be amortised over its expected useful life in the business. Impairment Because of

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(or less) than the equity in the subsidiary (at the time of acquisition), recognise this difference as positive (or negative) goodwill. Goodwill is as an intangible asset under fixed assets in the consolidated balance sheet (see Chapter 10 Goodwill and other intangibles). 2 Non-controlling interest (NCI) – liability Where a subsidiary is

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stated at depreciated book value. Investments will need to be stated at market value. Intangible fixed assets (see Chapter 10 Goodwill and other intangibles) Only intangible assets which have a market value, such as patents and trademarks should be included. This may require a specialist valuer. Other intangibles such as purchased goodwill

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sheets at 2 January 2016 (2014: 3 January 2015) Group Parent Company Note 2015 £’000 2014 £’000 2015 £’000 2014 £’000 ASSETS Non-current assets Intangible assets 10 10,248 04,721 10,248 4,721 Property, plant and equipment 11 284,163 262,719 284,756 263,312 Investments 12 – – 4

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,721 97,090 103,721 97,090 Investing activities Acquisition of property, plant and equipment (65,785) (44,456) (65,785) (44,456) Acquisition of intangible assets (5,981) (3,809) (5,981) (3,809) Proceeds from sale of property, plant and equipment 8,086 2,231 8,086 2,231 Interest

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using the exchange rate at the date of the transaction. Foreign exchange differences arising on translation are recognised in the income statement. (f) Intangible assets The Group’s only intangible assets relate to software and the costs of its implementation which is measured at cost less accumulated amortisation and accumulated impairment losses. Subsequent expenditure

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recognised in the income statement as incurred. Amortisation is recognised in the income statement on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives for the current and comparative periods are five years. Assets in the

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foreign currency risks not to be significant. 3 Profit before tax Profit before tax is stated after charging/(crediting): 2015 £’000 2014 £’000 Amortisation of intangible assets 454 100 Depreciation on owned property, plant and equipment 39,687 37,463 Impairment of owned property, plant and equipment 66 414 Loss on disposal

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on issue 2,616,364 1,517,722 Weighted average number of ordinary shares (diluted) during the year 103,220,951 102,034,808 10 Intangible assets Group and Parent Company Software £’000 Assets under development £’000 Total £’000 Cost Balance at 29 December 2013 1,715 – 1,715 Additions 817 2

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are operating leases. 25 Capital commitments During the year ended 2 January 2016, the Group entered into contracts to purchase property, plant and equipment and intangible assets for £2,010,000 (2014: £6,454,000). These commitments are expected to be settled in the following financial year. 26 Related parties Identity of

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of shares to outside investors by a private company. Insolvency Legal term used where a company is unable to repay the debts that it owes. Intangible assets Fixed assets that have no physical form and include development costs, patents, trademarks and software. Interest cover Measure of the affordability of debt to a

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(or infinite) life assets, 2nd, 3rd individual shareholders information in the public domain initial public offering (IPO), 2nd insolvency, 2nd, 3rd, 4th institutional investors insurance intangible assets, 2nd interest, tax relief interest cover, 2nd interest rates Internal Rate of Return (IRR), 2nd, 3rd International Accounting Standards Board (IASB) International Accounting Standards (IAS

Corporate Finance: Theory and Practice

by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann le Fur and Antonio Salvi  · 16 Oct 2017  · 1,544pp  · 391,691 words

the loss in value of an asset not related to its day-to-day use, i.e. the unforeseen diminution in the value of: an intangible asset (goodwill, patents, etc.); a tangible asset (property, plant and equipment); an investment in a subsidiary. Depreciation and amortisation on fixed assets are so-called “non

…

exceptions to this principle that we will see in Chapters 6 and 7. 3Amortisation is sometimes used instead of depreciation, particularly in the context of intangible assets. 4Or non-recurrent items. 5Also called by-destination income statement. 6Also called by-category income statement. 7The US airline companies are an exception as most

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contingent liabilities (that do not appear on the balance sheet); by excluding worthless assets, i.e. of zero value. This very often applies to most intangible assets owing to the complexity of the way in which they are accounted for (see Chapter 7). Section 4.4 A detailed example of a capital

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, so we can proceed to allocate the other movements to the investment and financing cycles. The investment cycle includes: capital expenditures (acquisitions of tangible and intangible assets); disposals of fixed assets, i.e. the price at which fixed assets are sold and not any capital gains or losses (which do not represent

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the new subsidiary, joint venture or associate are valued at their fair value and are recorded on the group’s balance sheet in these amounts. Intangible assets in particular are valued even if they weren’t recognised on the acquired company’s balance sheet: brands concerned, patents, software, emissions permits or landing

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in the revalued equity of the acquired company is called goodwill. It appears on the asset side of the new group’s balance sheet as intangible assets. This method is known as the purchase method and it gives rise to the purchase price allocation (PPA for friends and family). Under IFRS and

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accounted for the acquisition of Lafarge in 2015. Prior to the acquisition, Holcim’s balance sheet (in millions of CHF) can be summarised as follows: Intangible assets 6 238 Shareholders’ equity 19 279 Other fixed assets 20 465 Provisions 1 016 Working capital 1 046 Net debt 7 454 While Lafarge’s

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balance sheet (in millions of EUR) was as follows: Intangible assets 11 412 Shareholders’ equity 17 563 Other fixed assets 15 318 Provisions 674 Working capital 111 Net debt 8 604 Holcim acquired 100% of Lafarge

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more than Lafarge equity. This amount is not equal to goodwill, as Holcim proceeded to a revaluation of assets and liabilities of Lafarge as follows: intangible assets other fixed assets working capital provisions including deferred tax liability11 net debt (fair value) −CHF10 382m +CHF7315m +CHF909m +CHF424m +CHF1971m Total adjustments amount to −CHF4553m

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+ 909 – 424 − 1971). Consequently, the amount of goodwill created was CHF1920m – (–CHF4553m) = CHF6473m. The simplified balance sheet of the combined entity was therefore as follows: Intangible assets 6238 + 11 412 − 10 382 = 7268 Shareholders’ equity 19 279 + 18 590 = 37 869 Goodwill 6473 Net debt 7454 + 8604 + 1971 + 893 = 18 922 Other

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. A group often acquires a company by paying more than the book value of the company’s equity. The difference is recorded as goodwill under intangible assets, minus any unrealised capital gains or losses on the acquired company’s assets and liabilities. This goodwill arising on consolidation is compared each year with

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internal flows. Goodwill is the difference between the price paid for the subsidiary and the estimated value of its assets minus liabilities. Goodwill is an intangible asset, the value of which will be tested every year and impaired if need be. Full consolidation because groups tend to prefer exclusive control over joint

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reverse. For example, a company can accrue R&D costs, i.e. consider that it should not appear in the P&L but as an intangible asset that will be amortised or depreciated. 3. How should financial analysts treat them? Deferred income and prepaid cost form part of operating working capital. Section

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? Impairment losses are set aside to cover capital losses, or those that may be reasonably anticipated, on assets. They can be incurred on goodwill, other intangible assets and tangible assets. 2. How are they accounted for? Impairment losses are computed based on the value of cash generating units (CGUs).9 The firm

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of latitude in treating these items that now represent a significant portion of companies’ balance sheets. Under IFRS, a company is required to recognise an intangible asset (at cost) if and only if: it is probable that the future economic benefits that are attributable to the asset will flow to the company

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if the cost of the asset can be reliably measured. Internally generated goodwill, brands, mastheads, publishing titles and customer lists should not be recognised as intangible assets. Internally generated goodwill is expensed as incurred. Costs of starting up a business, of training, of advertising, of relocating or reorganising a company receive the

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sheet and neither can training or advertising expenses, which are consequently part of goodwill but not individually identified as such. Intangible assets with finite lives are amortised over their useful life. Intangible assets with indefinite lives undergo an impairment test each year to verify that their net book value is consistent with the recoverable

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as possible by expensing every possible cost. Conversely, an ailing company or one that has made a very large acquisition may seek to maximise its intangible assets in order to keep its net profit and shareholders’ equity in positive territory. From a financial standpoint, intangible fixed assets form a key part of

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(or property, plant and equipment)24 comprise land, buildings, technical assets, industrial equipment and tools, other tangible assets and tangible assets in process. Together with intangible assets, tangible assets form the backbone of a company, namely its industrial and commercial base. 2. How are they accounted for? Tangible assets are booked at

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that generates cash inflows from continuing use, these cash inflows being largely independent of the cash inflows from other assets or groups of assets. 9An intangible asset with indefinite useful life to be precise. 10A transaction done “at arm's length” designates a transaction where two entities have acted as if they

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discounted amount. Investment in fixed assets comprises investment in production capacity and growth, whether in the form of tangible assets (machinery, land, buildings, etc.) or intangible assets (research and development, patents and licences, business capital, etc.) or financial assets (shares in subsidiaries) for external growth. The calculation must be made for each

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. Here again, revaluation will have an impact on income taxes. Remember that when you revalue inventories, you are decreasing future profits. 3. Intangible assets It might seem paradoxical to value intangible assets, since their liquidation value has, for a long time, been considered to be low. It is now widely acknowledged, however, that the

…

value of a company is partly determined by the real value of its intangible assets, be they brand names, a geographical location or other advantages. The sum-of-the-parts approach makes no sense unless it takes into account the

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company’s intangible assets. Some noteworthy examples: Brands: particularly hard to value but the importance of brands in valuation is growing. In general, there are three methods for valuing

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to tax or depreciable assets will be undervalued and yearly taxes higher. Calculating net asset value makes sense only if it includes the company’s intangible assets, which can be particularly difficult to value. No company valuation is complete without an analysis of the reasons for the differences in the results obtained

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as to reassure third parties of its liquidity, while its debt is rated non-investment grade; for companies with a lot of R&D or intangible assets (pharmaceuticals, technology), having cash on the balance sheet partly counterbalances the fluctuations in cash flow and reduces the risk of investment for the shareholder; investment

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(IPO) creation of discount execution of LBO exit preparation sizing success of techniques underpricing workings of innovation inside shareholders instalments, interest rates institutional investors insurance intangible assets intangible fixed assets integration strategies, value chain intercompany agreements, cash management intercompany credit interest capitalisation deductibility free cash flow after interest-bearing accounts interest charges

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