Research published by Brand Finance suggests 62% of the value of all quoted companies is now in the form of disclosed and undisclosed intangible assets.
The 2006 Global Intangible Tracker (GIT) report co-published by the Institute of Practitioners in Advertising covers more than 5,000 companies in 25 countries tracked over a period of five years.
Of the total $36.2trn in enterprise value of the companies tracked, the GIT report estimates $14trn represented tangible net assets, $4.3trn disclosed intangible assets, and some $17.9trn of undisclosed value.
The gap between disclosed value and market value is partly explained by short-term mergers and acquisitions activity, but mostly by intangible assets, the report states.
“Intangible assets include brands, rights such as leases and intellectual property rights including patents and trademarks.”
“Notably an anomaly that forbids the capitalisation of internally generated intangibles contributes to the chasm meaning companies cannot capitalise and account for all of their assets. For example the Cadbury's brand cannot be capitalised even though the parent company can capitalise its acquired, but no less valuable brands, like Adams.”
Advertising is the sector with the highest ratio of intangible assets - all its value is derived thus. Media (91%) and pharmaceuticals (89%) follow close behind. By contrast the ratios in auto manufacturing (80%), electricity (64%), insurance (53%) and banking (42%) are far lower.
By geography there is a clear split between regions such as Europe, where many companies report high levels of intangible assets, and Asia, where outsourced manufacturing means tangible assets represent a higher proportion of enterprise value.
Switzerland claims the top spot as the country with most declared and undeclared intangible assets, with the report puts down to the presence of the world's two biggest pharmaceutical companies Roche and Novartis - given the high prevelance of intangible assets in this sector.
India scores highly because of the dominance of software companies on its stock markets. Three out of the top 10 quoted companies in India are software ones.
France reports the highest country-specific ratio of disclosed intangible assets, with nearly a quarter, or 24% of the Paris Bourse calculated as such. Germany (19%), the UK (17%), Italy (15%) and the Netherlands (14%) follow.
Intangible assets are being increasingly recognised as the result of the spread of international accounting standards, Brand Finance says.
This recognition means management will increasingly be under pressure to realise this formerly hidden value within their companies.
The report notes the banking and major oil sectors have increase their total enterprise values most over the five-year period studied, while pharmaceuticals, telecoms, semiconductors and computers have lost the most. Telecoms companies paid over the odds for assets during the so-called TMT bubble, while companies such as Intel and IBM have not recovered the enterprise value lost when investors turned away from technology shares.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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