Unmasking the Value of Intangible Assets (Part 1 of 2)

In today's dynamic business landscape, understanding and assessing intangible assets is crucial to realise the true worth of your company.

Comprehending the Hidden Forces

• Intangible assets are non-monetary resources that lack physical properties, yet they provide economic value and benefits to their owners.
• Think of iconic brands like Apple. Beyond sleek gadgets, Apple’s core value lies in its innovation and user experience.

Key Driver of Corporate Success

• Research by McKinsey reveals a direct correlation between investment in intangibles and business growth, with leading firms outpacing their peers by 6.7 times. (Source: McKinsey – Getting tangible about intangibles: The future of growth and productivity?)
• Intangible assets are instrumental in shaping consumer preferences, often tipping the scales in favourof brands with strong reputations.
• This affords firms a competitive advantage, enabling them to charge a premium, thereby commanding higher margins.

Unpacking Market Trends

• Trends: Over 90% of the S&P 500’s market value composed of intangible assets in 2022. This is a significant surge from a mere 17% in 1975. (Source: Brand Finance – How much value is there in intangible assets?)
• Drivers: Economies are pivoting towards knowledgebased models. Tech-driven firms with innovative intellectual property are becoming increasingly prominent, overshadowing traditional sectors dominated by physical assets.
• Opportunities: EDB identifies Southeast Asia as a hotbed of this transition. Its burgeoning internet economy, poised to hit US$1 trillion by 2030, offers fertile ground for intangible asset development. (Source: Economic Development Board (EDB) – How Singapore is helping businesses unlock value from intangible assets and intellectual property)

Transformation in the Singapore Landscape

• Recognising its growing influence in the digital economy, Singapore has taken proactive steps with the launch of the Intangibles Disclosure Framework (IDF) by IPOS and ACRA. (Source: Intellectual Property Office of Singapore (IPOS) – Intangibles Disclosure Framework)
• The IDF seeks to enhance transparency and reliability in the reporting of intangible assets via 4 pillars: Strategy, Identification, Measurement, and Management.

How do we value Intangibles?

• Unlike tangible assets with easily quantifiable worth, intangible assets often require sophisticated valuation methodology.
• These methods can be categorised into 3 primary approaches: Market Approach, Income Approach, and Cost Approach.

Market Approach

Source:
(1) International Valuation Standards (IVS) 210 – Intangible Assets

Income Approach

Source:
(1) International Valuation Standards (IVS) 210 – Intangible Assets

Cost Approach

Source:
(1) International Valuation Standards (IVS) 210 – Intangible Assets

The Bottom Line

• Valuation of intangible assets is not an exact science, but an art that requires professional judgement.
• The choice of method is dependent on various factors, including the stage of development and nature of the asset.
• Stay tuned for our next discussion, where we will delve deeper into the key considerations when valuing intangible assets.

Towards this end, our team of experts stands ready to assist you with tailored valuation services designed to unlock the hidden value of your business.

For further insights or to discuss your specific financial scenario, connect with us today!