· Over 75% of the world’s intangible assets are kept off balance sheets as world’s public companies break new value records
· Amazon takes over from Apple as the most intangible company in the world but 98% of its value remains unreported
· Internet & Software companies report less than 10% of intangible value, despite topping the rankings of asset-rich giants
Global intangible value has surpassed US$50 trillion for the first time in history, reaching US$57.3 trillion at the beginning of the current financial year, according to the latest Brand Finance Global Intangible Finance Tracker (GIFT™). This constitutes 52% of the overall enterprise value of all publicly traded companies worldwide, which now amounts to an equally record-breaking US$109.3 trillion, exceeding the US$100 trillion mark also for the first time.
Worryingly, however, 76% of the world’s intangible value – US$43.7 trillion – remains unaccounted for on balance sheets. At US$35.0 trillion last year, undisclosed intangible value has grown by a whopping 25% year on year – five times faster than the value of disclosed intangible assets (up 5%) – and outpacing by far the overall global enterprise value growth (up 18%).
The past year has also seen a decline in the granularity of intangible asset reporting as the gap between disclosed intangible assets – accounted for in detail on balance sheets – and goodwill has widened dramatically. Goodwill is a premium paid over the fair value of assets in the event of a company being purchased and is sometimes used as a shortcut to avoid performing a more granular valuation of intangibles. Companies now list a stunning US$2.3 trillion more goodwill than disclosed intangible assets, compared to US$1.8 trillion last year.
David Haigh, CEO of Brand Finance, commented:
“Insufficient reporting of intangible assets leads to a host of problems for analysts, investors, boards, and stakeholders. With little information on particular assets, analysts’ assessments are not as accurate, forcing investors to act with one eye closed. This, in turn, has negative effects on share price volatility, affecting the stability and sustainability of finance. Equally, the lack of granular information on the true value of assets leaves boards and shareholders prone to hostile takeovers or selling and licencing individual assets below competitive prices.”
Intangible assets (such as brands, relationships, know-how) make up a greater proportion of the total value of many businesses than tangible assets (such as plant, machinery, and real estate). However, current financial reporting rules allow intangible asset disclosure only during M&A activity, resulting in no knowledge of the worth and business importance of intangibles unless they are subject to an acquisition.
David Haigh, CEO of Brand Finance, commented:
“A commitment to undertake an annual revaluation of all company assets, including tangible assets, acquired intangibles, and intangibles generated internally, would be a boon for boards, accountants, investors, and analysts. Newly-gained transparency and clarity would enable boards to make more effective use of their assets, accountants to have a more detailed picture of asset values, and investors and analysts to more accurately price shares.”
According to Brand Finance’s survey of financial analysts, conducted in 2016, the majority backs this demand for an annual revaluation of all intangible assets (73%), including the full disclosure not only of acquired intangibles (79%) but of all internally generated ones too (68%).
The problem is best highlighted by the stark disparity between the list of the world’s top 100 most intangible companies and an equivalent list ranked by disclosed – as opposed to total – intangible value. Amazon (with intangibles worth US$827 billion), taking over as the most intangible company in the world, as well as last year’s leader Apple (US$648 billion) do not even make the list of top 100 companies by disclosed intangible value. Their intangible value remains undisclosed at 98% and 99% respectively.
The Internet & Software sector, where Amazon is joined by other digital giants such as Alphabet and Alibaba, has a very high percentage of enterprise value attributable to intangibles overall (87%), placing it just behind the Cosmetics (90%) and Aerospace (90%) industries. It also has the second-highest absolute intangible value among all sectors of the economy, at US$6.8 trillion, behind only Banking’s US$8.5 trillion. Despite this exposure to intangible value, Internet & Software is among those sectors which account for a very low value of their intangibles, reporting just 9.1% in goodwill and disclosed assets.
About Brand Finance GIFT™
The Brand Finance Global Intangible Finance Tracker (GIFT™) is the world’s most extensive annual research exercise into intangible assets, considering 58,000 publicly quoted companies (with a total value of over US$100 trillion) across 179 jurisdictions.
In its analysis, the Brand Finance GIFT™ 2018 report provides detailed insight into intangible value reporting by company, sector, and country. Consult the report document for graphs, executive commentary, and opinion pieces by our experts.
Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
Data compiled for Brand Finance reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.