Business Valuations and the Intangible Information Gap
February 23, 2010 by Mary Adams · Leave a Comment
I was recently sent a copy of a new Statement on Management Accounting about Business Valuation (free but registration required) from the Institute of Management Accountants.
It’s a great overview of the process used to value businesses. None of the information in the paper was a surprise to me. I learned the basics of this process years ago when I was a high-risk lender.
But when I read the paper with my intangible capital hat on, I was struck by how much the accounting challenges of intangibles are limiting and, perhaps, distorting the work of valuation professionals. Read more
Intangible Capital in M&A
February 17, 2010 by Mary Adams · 1 Comment
I was thrilled to see this new report by the Hay Group The Silver Bullet of Success: Winners and Losers in the M&A Game. The report is about how intangible capital is critical to the success of M&A. Below are the major points of the paper (quotes in italics) with my comments on each one:
Companies underestimate intangible capital : Executives typically value intangible capital - including culture and customer relationships - at just 30 per cent of market capitalization, not the 75 per cent that analysts expect. Read more
Accounting for Intangibles - The Income Statement is Not the Answer
January 3, 2010 by Mary Adams · 1 Comment
I guess it’s time to talk about Accounting for Intangible Assets: There is Also an Income Statement by Stephen Penman. When this new paper first came out from the Center for Excellence in Accounting & Security Analysis at Columbia University, I decided to ignore it as an apology for current accounting standards–which are completely inadequate for the knowledge era.
But now the paper is getting more attention so I feel the need to answer it.
We are not talking about some theoretical accounting issue. 70% of the value of the average M&A deal is intangible. 60% of the average corporate investment is intangible. 50-80% of the average public company is intangible. That means that intangibles are ignored by accountants (the only real exception is in the case of a merger, when the lack of understanding ends up as 50% of the purchase price going to goodwill). None of this is helpful to the cause (and stated mission of Columbia’s center) of “excellence in accounting and security analysis.” Read more
Tiger Woods and Intangibles
December 21, 2009 by Mary Adams · Leave a Comment
Yesterday in the New York Times, Frank Rich called for making Tiger Woods, Person of the Year. Rich said
What’s striking instead is the Enron-sized gap between this golfer’s public image as a paragon of businesslike discipline and focus and the maniacally reckless life we now know he led. What’s equally striking, if not shocking, is that the American establishment and news media - all of it, not just golf writers or celebrity tabloids - fell for the Woods myth as hard as any fan and actively helped sustain and enhance it.
Enron and Tiger Woods. He got me there. I couldn’t resist despite all that has been written about Tiger, as we all had come to call him.
You see, in both cases, we saw success in one sphere and assumed success in all others. Read more
Open Response to PwC and the UK Financial Reporting Council
November 19, 2009 by Mary Adams · Leave a Comment
David Philips, whose Corporate Reporting Group at PriceWaterhouseCoopers has stuck with the challenges of reporting year in and year out, just posted about a new report from the Financial Reporting Council (FRC) called Louder than Words: Principles and actions for making corporate reports less complex and more relevant. In support of the report, PwC has written a letter suggesting concrete action plans to make that happen.
I started writing a response on his blog but it got a little too big for a comment so I moved it here. Regular readers have seen the data before (especially in my recent post on goodwill) so please excuse the repetition. Read more
What does it mean that ROA has declined since 1965?
November 17, 2009 by Mary Adams · 1 Comment
Deloitte has been getting attention to its 2009 Shift Index report. The index is hoping to become the 21st century version of the Composite Index of Leading Indicators. Although they do not put it in these terms, the indices are attempting to measure the knowledge economy. There are three main indices made up of a total of 25 indicators. The indices attempt to measure:
- Foundation: computing capacity and networking bandwidth
- Flow: internet activity, knowledge flows and movement of people
- Impact: labor, corporate and brand performance
There is a lot of interest here. But in the marketing of this report, the factoid that I have seen reported from a lot of corners is that since 1965, long-term corporate performance has declined dramatically. Read more
Goodwill is a Metric of the Failure of the Accounting Model
November 4, 2009 by Mary Adams · 8 Comments
At least once a week, I see articles or blog posts bemoaning goodwill. One of the latest was an article in Business Week entitled Magic Tricks on the Corporate Books. This article is typical in its interpretation that goodwill represents funny money. It is often also assumed that management teams are playing games with goodwill. While this may sometimes be the case, goodwill usually represents actual, identifiable value. The problem is that no one really knows when and where this value exists. The accountants could produce data but they don’t. Read more
Shedding Light on the Value and Performance of Intangible Capital
October 8, 2009 by Mary Adams · Leave a Comment
The first thing that most people ask when discussing intangibles is value. My answer is, “how can you value something for which you have no data?”
I do not mean to imply that it is impossible to develop data on your intangible capital. It’s just that most companies have not taken the necessary steps to accomplish this. How can you create a sound data set on your intangibles? Read more
Accounting for Intangibles Represents Strategic Opportunity for Corporate America
October 6, 2009 by Mary Adams · Leave a Comment
Thanks to Nir Kossovsky for his post on the Mission: Intangible Blog pointing out the opinion piece by long-time corporate governance leader, Nell Minow, in the Financial Times last week entitled, Impresarios on the Board Are a Bad Sign. Minow makes the case that
Opponents of post-meltdown reforms to corporate governance are trying to hold back change by focusing on Washington. The US Chamber of Commerce is spending $100m (€69m, £63m) to try to defeat any substantive reforms. They are missing the point. No matter what happens in Washington, the market is forcing through significant and pervasive reforms. The companies that first understand that will benefit from a lower cost of capital and more committed long-term investors. As we understand better the mistakes of the past and the challenges ahead, fund managers and analysts will look at “new fundamentals”, four elements that will become as important as cash flow and return on investment. Read more
Shareholder Value is Bankrupt: What Will Replace It?
September 23, 2009 by Mary Adams · 1 Comment
Earlier this year, Jack Welch made the statement to the Financial Times that “shareholder value is the dumbest idea in the world…your main constituencies are your employees, your customers and your products.” This is part of a FT series on the Future of Capitalism.
A couple weeks ago, the Aspen Institute released a paper signed by a group of 28 executives that included Warren Buffet (CEO, Berkshire Hathaway), Lou Gerstner Retired CEO, IBM) and John Bogle (Founder, The Vanguard Group). The paper entitled, Overcoming Short-termism, opens by saying: Read more
