Intangible Capital Reading List November 22-28, 2010

Intangible Capital Reading List November 16-21, 2010

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Don’t miss this discussion on Counting Intangibles

I am especially excited about the program I am leading for this month’s IAFS program on “Counting Intangibles.” I’ll be interviewing two great guests:

• Chuck Hulten of University of Maryland and The Conference Board and
• Alan Anderson of ACCOUNTability Solutions and AICPA.

Today, the intangible information gap in the average company is as high as 80%. It’s past time to close this gap and these are two people that can help us all understand how to do this. Please join in our discussion!

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The Information Managers Need Is About Intangibles

Here’s a study that highlights very clearly the need for intangibles information. It reports on interviews with 600+ senior accountants from large Australian companies. Most of the companies identified intangible value drivers as very important to their company’s success. Some of the most important drivers cited included:

• Remuneration of skilled workers 72.3%
• IT Infrastructure 70.6%
• Training 69.2%
• Brands 56.4%
• Customer or member acquisition 54.1%
• Executive compensation 54.5%

Yet few of the companies interviewed were actually identifying and tracking their investments in these value drivers. These three academics have made a great effort at beginning to show how intangibles investment can and should be tracked. It is our hope that their work will lead to new standards.

But you do not need new standards to do something about this information gap today. What we are talking about is adapting other forms of managerial accounting and management information, the kind of information that gets used every day inside companies to manage operations and monitor performance. The main goal of this chapter is to describe a management report on intangible capital expenditures that will make a huge difference in how your organization looks at its knowledge factory. Such a report is sorely needed because the average company is already spending a lot of money on intangibles—and getting some level of results whether they are measured or not. Isn’t it time to start measuring the effect of intangibles?

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

On the Value of Intangibles (and why that’s the wrong question)

The measurement of intangibles tends to create a lot of confusion. That’s because there are a number of ways of measuring them and they all get jumbled together. If you look at my last post on intangibles spending, you’ll see a real mixture of metrics. Some of Nakamura’s estimates looked at categories of “spending.” But in the case of M&A data, “cost” data for acquired intangibles on the balance sheet (which sounds a lot like spending) is really derived from “valuations” of individual assets (we’ll explain this below). Stock market data would be considered “valuation” data because it is extracted from the total corporate value placed on the company by the stock market. You can see that value and cost get mixed together a lot of the time. This leads to a lot of confusion. We’ll try to break down the concepts of value here and then tell you why we don’t think value is the right question for managers most of the time. Read more

Facing the Facts: You are already spending a lot of money on intangibles

We can say with great confidence that you are already spending a lot of money on intangibles. How do we know? Academics have been looking at the question for quite awhile. Here are places they have looked:
Read more

Why are intangibles not on the balance sheet?

Up until the 1970’s, the consumers of financials—managers, analysts, investors and bankers—had a much easier job. They had three sets of information by which to measure their investments.

1. Balance sheet. In those days, balance sheets did include all the important assets of a corporation and looking at the balance sheet gave you a good idea of the corporation’s capacity to grow and thrive in the future.
2. Cash flow statement which showed you the investments (capital expenditures) the company was making in its future. This was a critical statement for us when we were bankers because it showed the split between short- and long-term spending and financing.
3. Third was the income statement, which told you how the company was putting its assets to work from year to year. The income statement also includes depreciation and amortization, which expense a share of the cost of capital investments each year over the useful life of the asset.

The rise of the knowledge economy has broken this model. The balance sheet does not include intangibles. Investments in intangibles instead are mixed in with current year operating expenses. And no one knows how much is spent on building intangibles within an organization. Read more

Intangible Capital Reading List – October 28, 2010

Intangible Capital Reading List – November 15, 2010

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Intangible Capital Reading List – November 10, 2010

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