Intangible Business Assets: The Difficulty of Assigning Value

Vipal Monga reported in today’s Wall Street Journal that, “When RadioShack Corp. filed for bankruptcy protection last year, it raised more than $170 million by selling such holdings as real estate, leases and inventories of smartphones, computer cables and cameras.

“But the retailer’s books didn’t acknowledge two of its most valuable assets: its brand and its customer data.

How do you attach a price tag to something you can’t see or touch?

Today’s article noted that, “Assigning a value to a physical asset like a store or equipment is relatively easy. But, in the murky world of intangible assets, the calculations are squishy. The problem of how to value such assets has vexed accountants for decades.”

The Journal article explained that: “Altogether, companies in the U.S. could have more than $8 trillion in intangible assets, according to Leonard Nakamura, an economist at the Federal Reserve Bank of Philadelphia. That’s nearly half of the combined $17.9 trillion market capitalization of the S&P 500 index.

“These days, companies put far more money into nonphysical assets, such as customer databases, than they do in building new factories. Companies invested the equivalent of 14% of the private sector’s gross domestic product in intangibles in 2014, according to research by economist Carol Corrado. The investment in physical assets was about 10% of that sum. That’s essentially the reverse of 40 years ago, when 13% of private-sector GDP went to tangibles and 9% to intangible assets.”

On the other hand, today’s article pointed out that, “Some investors and analysts say they don’t need to know the specific value of intangible assets like data. They say a company’s stock price reflects the market’s appraisal of those assets.

“Take Facebook Inc. The stock market values the social-networking company at nearly $320 billion. As of Dec. 31, its assets minus liabilities totaled $44.2 billion. The difference between the two could serve as a proxy for the value of Facebook’s vast troves of user data, the algorithms it creates to mine that data and its brand.

That would put the value of Facebook’s intangibles at about six times that of its tangible assets, such as cash, property and equipment.”

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