The growing GIFT of intangible assets
New research has highlighted the importance of strong brands, with intangible assets now accounting for around half of global enterprise value (EV). For policymakers and management accountants alike, understanding these value drivers has never been more important, according to the Chartered Institute of Management Accountants (CIMA).
Released in April, the Global Intangible Financial Tracker (GIFT) 2015 produced by Brand Finance and CIMA, shows a continued rise in the value of intangible assets such as brands and intellectual property. The GIFT study of more than 58,000 companies quoted in 120 stock exchanges worldwide identified total EV of $71 trillion at the end of 2014, up $40 trillion since 2001.
Across the business sectors surveyed, $6.7 trillion of the increase came from the banking sector, reflecting its post-global financial crisis clean-up, with $1.8 trillion from pharmaceuticals and $1.6 trillion attributed to oil and gas. In contrast, the biggest loser over the past five years has been the oil and gas sector, hit by falling prices, along with the electric and mining sectors.
Telecoms companies dominated those with the most valuable disclosed intangibles, due to the benefit of goodwill, customer relationships and contracts in acquisitions. Advertising ranked as the most intangible sector globally, with virtually all its value being intangible.
Among the countries surveyed, the United States had the highest proportion of total value accounted for by intangibles, reflected in its hosting of technology companies such as Apple and Google. In contrast, Australia ranked 20th, behind even emerging economies such as India and Indonesia, with developing nations enjoying the fastest growth in recognised values.
The report noted an increased volume of M&A deals involving intangible assets, such as Comcast’s US$70.7 billion takeover of Time Warner Cable. The Asia-Pacific saw a record US$716 billion worth of M&A deals in 2014, with recent takeovers such as Japan Post’s $6.5 billion bid for Australia’s Toll Holdings showing an increasing focus on services.
Driving value
CIMA Executive Director Noel Tagoe said the research highlighted the importance of intangible assets to organisations and policymakers. “For example, policymakers will be interested in effective policies to accelerate investment in intangibles, how competition policy influences the formation and use of intangible assets, ways in which intangible assets facilitate entrepreneurship and new business models, and how efficiently markets work for key intangibles,” he said.
For managers and accountants, the global management accounting principles (GMAPs) published in 2014 by CIMA and the American Institute of Certified Public Accountants (AICPA) show how “value creation is at the heart of GMAPs.”
Sources of intangible value include relationships, knowledge, leadership, culture, reputation and skills, with organisations needing to focus on “co-creating shared value.”
“Whatever the requirements of accounting standards, companies should regularly measure all their tangible and intangible assets…and liabilities, not just those that have to be reported on the balance sheet,” Tagoe said.
With implications for both managers and investors, gaining a greater understanding of intangible assets could prove crucial in generating future prosperity for all.
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