We have just completed T2’s annual review of the level of intangible value in the global economy (quick shout out to Hilary Jacob for her hard work in helping to assemble and analyze this data).
As regular readers will know, what this involves is comparing the balance sheet value of companies (defined as their net tangible assets) to their enterprise value (defined as their market capitalization plus debt minus cash) to see what proportion of their value is represented by tangible assets (such as inventory and factories) versus intangible assets (such as intellectual property and brands).
We have been doing this analysis since 2002 and the numbers below are based on observations for more than 100,000 publicly-traded companies.
The headline finding is that tangible assets represent only 43% of the value of companies (this is an 11 year average, but the number for 2014 alone is 42%). In terms of industries, tangible assets account for 76% of the value of Utilities but only 13% of the value of Household & Personal Products companies. In terms of countries, tangible assets account for 71% of the value of South Korean companies but only 30% of the enterprise value of Swiss companies.
The findings have a lot of face validity in that the companies, industries and countries that you think of as being most asset intensive (in the traditional sense of requiring a lot of factories or capital equipment) have high ratios of tangible assets to enterprise value. Knowledge-based industries such as software and health sciences have a remarkably small percentage of their value tied up in physical assets.
The value of this analysis is the detailed understanding that it provides us of the relative importance of intangible assets in different industries – and what it implies about the potential for value creation through intangible assets across different industries.