“Intangible asset management is the most important issue for top ...

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18 Νοε 2013 (πριν από 3 χρόνια και 6 μήνες)

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Strategy and

Management Accounting for
Intangible Assets

Mikhail Davydov

Anna Devyatova

Alexander Shalamov

Ksenia Shneyveys



“Intangible asset management is the most
important issue for top management at
present…”


Sumantra Ghoshal, Professor
London Business School

Intangible assets, % of market value
60
68
74
82
83
85
85
94
96
Chrysler
Honda
BP
GE
3M
ABB
Intel
Microsoft
Coca-Cola
Defining Intangible Assets

Assets having no material form that appear as a result
of (1)
past events
that has a (2)
measurable effect
and that
presents a (3)
future benefit .



[Financial Accounting Standards Board (FASB)]


Assets arising as a result of past events and possess
three main attributes: they are non physical in nature,
they are capable of producing future economic net
benefits, and they are protected legally or through a
de facto right









[Bouteiller, 2002]


Defining Intangible Assets


Non
-
physical sources of value (claims to future
benefits) generated by innovation (discovery), unique
organizational designs, or human resource practices









(B. Lev, 2003)


A
ny asset, belonging to a company or controlled by it,
having no physical or financial (in case of financial
investment) form, but capable of producing future
economic benefits







(D. Volkov, T. Garanina, 2007)



Defining Intangible Assets


T
hree terms are widely used:


I
ntangible Assets



in accounting literature,


Knowledge Assets


by economists,


Intellectual Capital


in management and law
literature;


and on the whole they come to the same: to the future
benefits that are not embodied materially
”.










B.
Lev, 2004

Defining Intangible Assets

INTANGIBLE ASSETS =

= INTELLECTUAL CAPITAL =

= KNOWLEDGE ASSETS =


= INTANGIBLES




Intangible Assets,
recognized
according to the
accounting standards in accounting and
bookkeeping records



Other Intangible Assets

--

Intangible Assets
non
-
recognized

in accounting and bookkeeping records




Defining Intangible Assets


Composition and structure of intangible assets

INTELLECTUAL CAPITAL
HUMAN
CAPITAL
RELATIONSHIP
CAPITAL
ORGANIZATIONAL (STRUCTURAL)
CAPITAL
developed by
International Federation of Accountants
(IFAC, 1998)
Defining Intangible Assets

HUMAN CAPITAL

Definition


capability of a
company to benefit
from knowledge, skills
and experience of
employees, which
immanently pertain to
the latter.


For example:


capability for innovations


creativity


know
-
how and experience


ability to work in a team


motivation


learning capability


educational and
professional level


loyalty


etc.


Defining Intangible Assets

RELATIONSHIP CAPITAL

Definition


capability of a
company to benefit
from resources
connected with the
company's external
relations (with
customer, suppliers,
and other
counteragents).


For example:


brands


suppliers


loyalty of the customers


distribution channels


business cooperation


alliances and partnerships


licensing agreements


franchising agreements

etc.


Defining Intangible Assets

ORGANIZATIONAL (STRUCTURAL) CAPITAL

Definition

capability of a company
to benefit from
attainments remaining
inside the company.


For example:

Intellectual Property


patents


trademarks


service marks


name of origin of goods


copyright

etc.

Infrastructural Assets


corporate culture


internal administration of the
work
flow


information systems


management philosophy


decision
-
making system

etc.


Intangible Assets

Why are they so important?


Hard for competitors to imitate




A powerful source of sustainable competitive
advantage

Measuring Intangible Assets

If you can’t measure it,


you can’t manage it.

George O. Odiorne

Measuring the value of intangible assets is
the holy grail of accounting.

Robert S. Kaplan, David P. Norton


Measuring Intangible Assets

34 methods for measuring intangible assets


(1950’s


2004)

Probably, the list is not closed!


4 approaches for measuring intangibles


1)
Direct Intellectual Capital methods (DIC)

2)
Market Capitalization Methods (MCM)

3)
Return on Assets methods (ROA)

4)
Scorecard Methods (SC)

1) Direct Intellectual Capital methods (DIC)

Estimate the $
-
value of intangible assets by identifying its
various components. Once these components are
identified, they can be directly evaluated, either
individually or as an aggregated coefficient.


Example:

Technology broker (TB)


Measuring Intangible Assets

(Annie Brooking, 1996)

Assess the value of the IC of a firm based on diagnostic analysis of
a firm’s response to 20 questions covering four major
components of IC: market assets, human
-
centered assets,
intellectual property, infrastructure assets.

Questionnaire indicators.

3 methods of calculating dollar value for IC:


The cost approach: based on assessment of replacement cost of
the asset;


The market approach: uses market comparables to assess value;


The income approach: assess the income
-
providing capability of
the asset.


Measuring Intangible Assets

1)
DIC

Technology broker (TB)


Calculate the difference between a company's market
capitalization and its stockholders' equity as the value of its
intellectual capital.


Example:

Market measure of company’s IC


IC=market capitalization
-
stockholders’s equity




Market value = $ 12.77 billion


Stockholder equity = $ 1.47 billion



IC = $ 11.3 billion

Measuring Intangible Assets

2)
Market Capitalization Methods (MCM)

Step 1 :

determine the “realized IC”





Market value = $ 12.77 billion


Stockholder equity = $ 1.47 billion




“realized IC” = $ 11.3 billion


Measuring Intangible Assets

DIC/MCM
: FiMIAM methodology


Measuring Intangible Assets

DIC/MCM
: FiMIAM methodology



Step 2 :

identifying the relevant
components of IC

Step 3 :

assigning relative weights to IC
components

Step 4
: assigning value


organizational learning

0.04 * $11,3 billion = $ 452 million


knowledge product

0.08 * $11,3 billion = $ 904 million


patents

0.07 * $11,3 billion = $ 791 million

Measuring Intangible Assets

3)
Return on Assets methods (ROA)


Tangible assets and the annual financial growth
figures are compared to the industry average.
Above average earnings are then utilized to estimate
the value of intangible assets.

Example:
Economic Value Added (EVA
TM
)

Calculated by adjusting the company’s disclosed profit
with charges to intangibles. Changes in EVA
provide an indication of whether the firm’s
intellectual capital is productive or not.


The various components of intangible assets or
intellectual capital are identified as indicators
and indices are generated and reported in
scorecards or as graphs.


Measuring Intangible Assets

4)
Scorecard Methods (SC)


Balanced Scorecard Method


A way to systematically measure the alignment
of company’s human, information and

organization capital to the company’s strategy
(by D. Norton and R. Kaplan)


Scandia Navigator


Developed by Scandia (1994)


IA are divided into: human capital,
customer capital, process capital
and innovation capital


Focuses on: the
financial

focus, the
customer

perspective (customer
focus), the
process

perspective
(process focus), the
human

perspective (human focus), and the
renewal and development

perspective
(innovation focus)



200 indicators


Scandia Navigator


More suitable for service company


limited
applicability for other industries


All measures are expressed in monetary terms,
which is not always desirable for IA


Not clear as how the five perspectives in the
Skandia Navigator relate to each other



Equation that sums tangible and intangible assets
might be wrong as soon as there is no clear
distinction between them




IC Index Approach


Splits IA into human capital and structural capital,
separating “thinking” and “non
-
thinking” assets,
then dividing them into subgroups


A company needs to identify key IA indicators


They need to be ranked according to their
importance


Indicators chosen must be weighted and
summarized into a single index

IC Index Approach


Allows organizations to measure how changes in the market or
changes in other performance indicators correlate with the
changes in the IC Index



BUT


Using aggregates makes it difficult to identify the key business
drivers


Weightings for each of the different measures is done
subjectively which can be dangerous if managers get it wrong








IA Monitor


Three categories are taken into account:


1.
intangibles represented by competence of employees



2.
intangibles related to the internal structure of the organization



3.
those related to the external structure including brand names,
image, and relationships with suppliers and most importantly
relationships with customers



Three measurement groups:
growth and renewal
,
efficiency, stability

IA Monitor


Emphasises the internal perspective



Not a valuation approach



Summary


No single method of evaluation is perfect.


Company’s success depends not only on what is
measured but also how the measurements are used.


Presence of a great variety of approaches indicates
professional and scholar communities’
dissatisfaction with the existing ones.


In the years to come the question of developing
optimal techniques for intangible assets’
measurement will play a significant role in
management science.

Practical approach: Brand Valuation


PricewaterhouseCoopers



(1)
Develop

key performance indicators

(KPI)

to
monitor the

performance of the intangible

(2) Conduct a yearly assessment of the brand value

(3) Allocating a value to the brand on a regular basis
and tracking it over time.


Practical approach: Brand Valuation


PricewaterhouseCoopers

Year ended March 31

2003

2002

2001

PBIT

1 158.93

943.39

696.03

Less: non
-
brand income

89.65

59.77

53.43

Adjusted profit

1 069.28

883.62

642.60

Inflation compound factor at 6%

1.000

1.064

1.132

Present value of profits for the brand

1 069.28

940.02

727.25

Weightage factor

3

2

1

Three
-
year average weighted profits

969.19

Remuneration of capital (5% of average capital
employed)

123.52

Brand
-
related profits

845.67

Tax at 36.75%

310.78

Brand earnings

534.88

Multiple
-
applied

14.00

Brand value

7 488.00

In Rs Crore

Practical approach: Brand Valuation


PricewaterhouseCoopers

The
methodology

followed for valuing the brand is given below:

(1) Determine brand earnings

• Determine brand profits by elimination of non
-
brand profits from the total
profits of the company

• Restate the historical profits at present
-
day values

• Provide for the remuneration of capital to used for purposes other than
promotion of the brand

• Adjust for taxes

(2) Determine the brand
-
strength or brand
-
earnings multiple

Brand
-
strength multiple is a function of a multitude of factors such as
leadership, stability, market, internationality, trend, support and

protection. These factors have been evaluated on a scale of 1 to 100 internally
by the Infosys management, based on the information

available within the company.

(3) Compute the brand value by multiplying the brand earnings with the
multiple derived in step 2 above
.

Practical approach: Brand Valuation


PricewaterhouseCoopers


INFOSYS


Brand value,

Rs Crore

Market
capitalization,


Rs Crore


%

2001

5 376

26 926

20%

2002

7 257

24 654

29%

2003

7 488

26 847

28%









2006

22 915

82 154

28%

2007

31 617

115 307

27%

Practical approach: Brand Valuation




PricewaterhouseCoopers

List of KPIs being used for brand valuation

by best practice companies



Number of customers and retention
levels


Detailed customer satisfaction results



(often from external

brand surveys)


Number of complaints from customers


Customer delivery statistics (eg,
applications, errors,

delays, etc)


Sales trends by brand


Products per customer


Brand values


Brand awareness


Brand association


Employee satisfaction (although the
workforce is not an

identifiable intangible
asset for accounting purposes)


New clients


Success of new product


Price premium paid


Relative market share


customer value


Average revenue per customer


Churn rate


Frequency of purchase


Expiry date


Revenue derived from the innovation


Number of licences granted


Royalty revenues


Thank you!