It has long been accepted practice to account for intangible assets (“intangibles”) when valuing companies. Over time, and given changes in the economy, this has increased in importance. But valuation methods vary and there are big differences in how investors approach the subject. There is also great debate on the adequacy of existing accounting methods for successfully valuing intangibles. Accounting standards developed during the industrial era were designed for companies primarily engaged in manufacturing.
Today, these standards are not keeping pace as the global economy shifts to a services-oriented model. While the lack of a uniform definition may create uncertainty, it also has a practical aspect: since there is ambiguity in determining the specific benefits intangibles may bring, or even what should be considered outside of financial statements, an information advantage exists for researchintensive investors who are better able to value a company’s intangible assets.
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