Five Methods for Intangible Asset Valuation

An article in CFA Institute argues that intangible assets (non-physical assets such as trademarks, patents, etc.) are “increasingly critical to corporate value, yet current accounting standards make it difficult to capture them in financial statements.” As investment in intangible assets has grown (the article reports that it now represents 33.4% of total U.S. gross domestic investment in 2018), “the value of those assets as drivers of enterprise value becomes ever more essential.” The article outlines… Read More

Franchise Quality Score: A Method for Evaluating Intangibles

The lofty prices of certain stocks (i.e. FAANG) present a challenge for value investors, according to an August article in CFA Institute that delves into the subject of intangible assets and presents a proprietary metric—called the Franchise Quality Score—intended to evaluate the benefits such intangibles can offer. The article explains that current accounting standards were created during the industrial era when businesses were primarily engaged in manufacturing. “These standards have not kept pace in an… Read More

Intangible Assets Are Affecting Investment Returns

A recent article in the Financial Analysts Journal suggests that, even if investors were perfectly informed, could accurately forecast corporate earnings and invest at optimal times, their excess returns would be lower than expected due in large part to the treatment of intangible assets. This according to a recent article in The Economist. The authors argue that hypothetical returns have been falling because of the rising importance of intangible investments (such as trademarks and software… Read More