I have just completed one of my periodic “deep dives” into the topic of intangible value. As before (see the May 2009 archive for the previous postings), my initial objective is simply to document the extent of intangible value – how much of aggregate market value it represents, how this percentage varies by sector, and what has been the impact of the stock market decline on the proportion of intangible value.
This time, I decided to use as my data set all publicly-traded companies with a market cap of over $1bn as at the end of June for the past 10 years. The yielded a data set of 1,488 companies in June 1999, rising steadily to a peak of 4,588 companies as at end June 2007, then declining precipitously to a total of 3,537 companies at end June this year.
The aggregate market value of these companies rose from $17 trillion in 1999 to a peak of $41 trillion in 2007, declining to $27 trillion in June of this year.
The proportion of market value represented by tangible book value (total assets minus total liabilties minus balance sheet intangibles) averaged 24% for the period June 1999 to June 2008. In other words, only one quarter of the value of the world’s 3,500 largest publicly traded companies was explained by the tangible assets reported on their balance sheets. In June 2009, that figure increased to 33% – but this still means that intangible assets account for two thirds of market value.
That observation bears repeating: based on an analysis of the 3,500 largest publicly traded companies in the world as at end June 2009, INTANGIBLE VALUE REPRESENTS TWO THIRDS OF MARKET VALUE. Based on my experience as a business consultant, I am convinced that insufficient attention is paid to intangible assets during the strategic planning process.
{ 3 comments… read them below or add one }
Jonathan- I couldn’t agree with you more. In a way, reputation is the “bottom line” of all that a company does. But the tough part comes in trying to get practical about how to incorporate this intangible gap into practical, actionable information.
Here are some thoughts I shared with the Intangible Asset Finance Society last month: http://www.slideshare.net/maryadamsica/intangible-asset-performance-and-financial-results.
I would love to hear what you are doing in this space, Mary
Hi Mary
Thank you for your kind comment and apologies for the delay in responding (I was travelling this week). My primary focus is on integrating the marketing and financial perspectives on business – what about you?
Best
Jonathan
Thanks Jonathan- We help companies grow and innovate by leveraging their knowledge-based intangibles. These include people, process, IP, external networks, brands and reputation. None of these is visible in today’s accounting and information systems–we need to get them visible and then optimize them. This requires a new management toolkit that, as you point out, integrates with the financial perspective.