Analysis, Valuation, and Disclosure of Intangible Value

Analysis, Valuation, and Disclosure of Intangible Value

Natalia Canadas (Polytechnic Institute of Leiria, Portugal)
Copyright: © 2008 |Pages: 6
DOI: 10.4018/978-1-59904-885-7.ch007
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Abstract

The “information gap” between the data provided by the traditional corporate reporting, with its focus on tangible assets, and the information used to determine corporate value, has long been recognized. The missing information is about the nucleus of the modern corporate capitalization and the substantial foundation of modern corporation: the intangible items, the intangible value and the earnings-capacity of the firm.

Key Terms in this Chapter

Intellectual Capital: The internal equity of the entity, the aggregate intangible value, that is the aggregate expression of the intangible items in a proper sense and of the residual item, the goodwill.

Assets: An asset is a resource: (a) controlled by an enterprise as a result of past events; and (b) from which future economic benefits are expected to flow to the enterprise.

Going Concern Statement: An explicit statement of the effective and well-balanced capacity to last over time.

Intrinsic Value: A management assessment of the sustainable value of the resources of the entity based on the fundamentals, mapping the historical view and the forward-looking view.

Intangible Items in a Proper Sense: Intangible items in a proper sense are the ones that are not costs, have the nature of a differential advantage, cannot be bought or sold separately, are opinion assets and inherently fuzzy.

Dual Balance Sheet: If we add to the traditional balance sheet a direct statement of the intangible value, the value of intellectual capital or internal equity, obtained in a residual income framework, based on an assessment of the quality of earnings, and in the assets-side the value of the intangible items in a proper sense, we may have a dual balance sheet (see Canadas, 2004).

Intangible Assets: “An intangible asset is an identifiable non-monetary asset without physical substance” (IASC, 1998). Intangible assets are usually seen as non-physical sources of expected future benefits (excluding financial assets, for instance, equities and bonds). They are recognized in the balance sheet if there is a past cost that can be reliably linked to a future inflow of benefits. But those items that meet these recognition criteria are nevertheless almost tangible. In fact, the recognition criteria imply to materialize the immaterial. Besides, that the material have no immaterial attributes?

Numerical Classification: An assessment of the relative contribution of the intangible items to the aggregate intangible value based on a managerial point of view of the strategic choices, goals and positions of the firm. The valuation vectors of those items (specificity, overlay with the strategic factors of the industry, inimitability, appropriability) are used in a fuzzy inference system to build a measure of its relative value, its “degree of membership.”

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