Calculated Intangible Value Definition
A method of assigning a fixed value to a company’s intangible assets that are not affected by changes in market value is calculated intangible value. Assets owned by a company that cannot be seen physically, such as trademarks, intellectual property and copyrights, a method of valuing assets of this nature is known as calculated intangible value.
One of the methods that can be used to allocate a fixed value to intangible assets is by subtracting a firm’s book value from its market value. However, due to constant changes in the market value, using the above method is not an accurate way of allocating fixed value to intangible assets.
A Little More on What is Calculated Intangible Value – CIV
Below is a highlight of the steps that can be followed when allocating a fixed value to intangible assets of a company;
- Calculate the firm’s assets and multiply by the Return on Assets (ROA) of the industry.
- Subtract the value from the pretax earnings of the firm. This result will give you a premium that can be attributed to intangible assets, then,
- Divide the premium you get by the cost of capital of the firm to realize the NPV.
Another method you can use is;
- Estimate a company’s average pretax earnings for the past three years.
- Calculate the average year-end tangible assets for the past three years
- Calculate the company’s ROA
- Calculate the average ROA of the industry for the three-year period.
Reference for “Calculated intangible value-CIV
- https://www.investopedia.com › Investing › Financial Analysis
Academic research on “Calculated intangible value-CIV”
Calculated Intangible Value And Brand Recognition, Boncella, A. M., James, M., & Boncella, R. J. (2014). Calculated Intangible Value And Brand Recognition. How can a company value its various intangible assets? By definition, intangible is “a good, service, or effect that has no monetary value.” One example of an intangible asset is employee knowledge. For instance, an employee in the advertising department has intangible assets that are comprised of knowledge of customer demographics, company goals, and what has or has not worked in the past (to name just a few), all of which lead to successful or unsuccessful marketing campaigns. Therefore, a strong relationship with customers is built by using a company’s intangible assets generated by employees and vendors. The strength of this relationship is reflected in the calculated value of the firm’s intangible assets and the firm’s brand recognition. A company with stronger brand recognition has more value residing in its intangible assets.
Measurement and Reporting of Intellectual Capital with Calculated Intangible Value Method, Pazarceviren, S. Y., & Kaya, H. P. (2018). Measurement and Reporting of Intellectual Capital with Calculated Intangible Value Method. Business and Economics Research Journal, 9(2), 331-348. The main purposes of this study are to examine the studies measuring and reporting intellectual capital, to revise these studies with accounting perspective and to determine the intellectual capital values of firms operating in Textile and Leather Products Industry in Borsa Istanbul for the years 2014-2016 via “Calculated Intangible Value Method”. The findings reveal that intellectual capital indicating firms’ fair value is to be reported. However, it is difficult to recognize intellectual capital as an intangible asset and to report it in financial tables since there is not a direct definition towards intellectual capital in International Financial Reporting Standards and Turkish Accounting Standards/Turkish Financial Reporting Standards. This study reveals that the best reporting approach is to present the information related with intellectual capital in the annual reports of firms within the frame of current regulations.
Kujansivu, P., & Lönnqvist, A. (2007). Investigating the value and efficiency of intellectual capital. Journal of Intellectual Capital, 8(2), 272-287. This paper seeks to provide an empirical view of the present state of intellectual capital (IC) in Finnish companies. It also examines the relationship between the concepts value of IC and efficiency of IC. Calculated Intangible Value (CIV), which measures the monetary value of IC, and Value Added Intellectual Coefficient (VAICTM), which describes how a company’s IC adds value to the company, were applied to approximately 20,000 companies per year during the period 2001‐2003 and studied using correlation analysis.
Aho, S., Ståhle, S., & Ståhle, P. (2011). A critical assessment of Stewart’s CIV method. Measuring Business Excellence, 15(4), 27-35. Knowledge companies who generate their revenue from leveraging the talents and contacts of professionals are confronted with two dilemmas ‐ acquiring institutional funding without hard collateral and managing these revenue‐generating talents. These companies appear to have understated balance sheets. Their value, however, can be highly appreciated as is illustrated by the stock prices. This presents a problem when acquiring institutional funding since hard collateral is scarce. Another dilemma is how to manage these revenue‐generating talents and systems. It appears that both external and internal sources have a need to measure, manage and grow these assets. This paper presents methods currently in use to identify and measure intangible assets and also experiments by applying five of these measurements to a single company over a period of eleven years. The purpose of this exercise is to note any similarities with financial measures and to determine the predictability of performance based on these indicators.
Twenty-first century management rules: the management of relationships as intangible assets Galbreath, J. (2002). Twenty-first century management rules: the management of relationships as intangible assets. Management Decision, 40(2), 116-126. As much of the developed world faces a recessionary tide, age‐old questions on the nature of creating and sustaining lasting market value are once again being asked. In the past, questions of market value creation were answered by investing in tangible assets. Today, those same questions are being answered by investing in intangible assets. Intangible assets, such as knowledge, patents, organizational structure, copyrights, information technology, business processes and brand, among others, now constitute the majority of value created by firms today. However, ultimately, businesses are made up of a network of relationships: relationships with customers, employees, suppliers and partners. These “relationship assets” constitute a firm’s most valuable store of capital and their most important intangible assets. The ability to create and sustain maximum market value, therefore, requires a focused set of twenty‐first century management rules. Rules focused on intangible, relationship asset leverage.
Intangible Assets: A Study of Valuation Methods. Sharma, N. (2012). Intangible Assets: A Study of Valuation Methods. BVIMR Management Edge, 5(1). International Financial Reporting Standard (IFRS-3) in 2004 imposes mandatory reporting of intangible assets so as to enhance the level of transparency. In India, Institute of Chartered Accountants of India has also issued an accounting standard regarding disclosure of intangible assets. Recent national and international guidelines direct companies to go through a more rigorous process of identifying and valuing acquired intangibles assets. There are number of methodologies intended to provide sufficient credible and consistent manner for valuation of these assets. But unfortunately the correct measurement of intangible assets has never been an easy task. Due to enormous difficulty in valuation and big risk of inaccurate measurement, there is still a big gap in the financial reporting of intangible assets. Valuation of intangible asset is still seen as a black art. In the light of the above facts, the present paper explores different methods for valuing acquired as well as self-generated intangible asset and discusses recent case studies concerning the valuation of generated and acquired intangible assets. The paper critically evaluates different methods of valuing intangible assets. The paper also attempts to put forward some suggestions to overcome the limitations of present financial reporting system.
Intellectual capital and corporate value in an emerging economy: empirical study of Taiwanese manufacturers Tseng, C. Y., & James Goo, Y. J. (2005). Intellectual capital and corporate value in an emerging economy: empirical study of Taiwanese manufacturers. R&D Management, 35(2), 187-201. Competitive success now is based less on the strategic allocation of physical and financial resources, and more on the strategic management of intellectual capital. Although intellectual capital is intangible and cannot be accurately measured, companies must develop methods of increasing corporate value by proactively focusing on intellectual capital management. This study examines the relationship between intellectual capital and corporate value in an emerging economy. This study employs an intellectual capital perspective, resource‐based view and a financial perspective, and investigates how to apply the concept of intellectual capital to value creation. After reviewing the relevant literature, this study identifies human capital, organizational capital, innovation capital and relationship capital as four constructs of intellectual capital. Corporate value is measured using three selection methods: (1) Market/Book value, (2) Tobin’Q and (3) Value Added Intellectual Coefficient (VAIC™). Through a questionnaire survey and secondary data collection, this study applies the Structure Equation Model to analyze the relationships among four constructs of intellectual capital, as well as the relationship between intellectual capital and corporate value. From the empirical findings, for Taiwanese manufacturers, a positive relationship exists between intellectual capital and corporate value. This study visualizes and mobilizes intellectual capital to articulate eight value creation paths.