There are many different ways to measure worth. While some indicators of value can be measured in dollars, numbers and property value, other contributing factors to success are not as physical. When it comes to the overall impact of a company or brand, some things are harder to catalog the way you can track sales and stock value. Intellectual property and brand recognition, for example, are valuable assets, but they are not tangible items: rather, they fall under the category of intangible assets.
What is an intangible asset?
An intangible asset is something that constitutes worth but falls outside of the realm of physical objects. Things that regularly fall under this category are intellectual property — such as copyrights, trademarks and patents — legal agreements and reputation. Intangible assets can be either definite or indefinite. They can also be either acquired or generated internally. In the case of the latter, the asset is not generally included on the balance sheet in the company's financial records.
While intangible assets are not as quantifiable as other assets a company might possess, like its number of factories or the value of the products it owns, they are undeniably integral when weighing the full value of a company and calculating its worth. For example, the brand recognition and confidence that Amazon has built is extremely influential to its success. The intangible assets of a company can bolster its financial worth and allow it to become more successful
What’s the difference between a tangible and intangible asset?
The difference between intangible and tangible assets is fairly straightforward. Tangible assets are physical; intangible assets are not. For example, while you can physically see and acclaim the land, products and equipment owned by a company, you cannot do the same with their relationships with customers and other brands or the value of their online domains.
Generally, tangible assets add to a company or entity's current market value, whereas intangible assets contribute to its future worth. For example, intangible assets like knowledge and goodwill are resources that help sustain a company and therefore increase its overall worth continually. Their impact is measured mostly in terms of future output. Also, intangible assets cannot be destroyed by things like natural disasters or theft (except in the case of theft of intellectual property, tarnishing of reputation or other similar circumstances) so they can help rebuild the tangible assets of a company.
How do you value intangible assets?
Intangible assets are valued differently depending on what they are. For example, those that are able to be separated from the company and sold are usually included on a company's balance sheet. Other assets — those that are indefinite, like goodwill, for example — are not included and can only be estimated when considering their contribution to the company's worth. A patent is an example of an asset that can be sold for a tangible value, while knowledge is an asset that is not financially quantifiable.
If an asset is acquired, its value can be listed on a balance sheet for how much it could be sold for. If the asset is created by the company — in the case of brand name, ideas, etc. — it cannot be listed on the balance sheet for its definite worth, but the expenses involved in creating it can be written off.
Examples of intangible assets.
As mentioned, there are several different kinds of intangible assets, ranging in quantifiability and abstractness. Here are some of the most common categories of intangible assets a company or entity can possess and how they might affect a company's worth.
Technological intangible assets.
These are intangible assets related to technological or online property. They include trade secrets, computer software, patented technology or blueprints featuring any kind of technological knowledge or capital.
Assets related to marketing.
Marketing-related assets are nonphysical assets that enhance the marketing efforts of a company. This includes intellectual and branded property, like trademarks, patents and copyrighted material. This category also includes digital property, like domain names and web design. If a company has any non-competition agreements with other companies, those agreements fall under this category as well.
Contract-based assets encompass everything from licensing agreements to employee contracts. This category covers every kind of valuable agreement that is contract-based. Other examples include franchise agreements, lease agreements and service contracts.
Customer and consumer-related assets.
Customer relationships — or lack thereof — have a significant impact on the worth of a company. Assets related to consumer base include reputation, relationships with customers and customer and order logs. If a company lost any of these things, it would suffer significantly, though none of them are physical possessions. They can be damaged if a company fails in its mission, compromises its integrity
or otherwise causes its customers to lose their trust or belief in it.
Artistic intangible assets.
Artists and artistic establishments have their own unique assets, especially those of the intangible kind. Artistic assets can be anything from performance rights, performances, promotional material, photos, musical numbers or television programs.
The value of a company goes far beyond the physical product and power a brand or entity possesses. There are many factors that contribute to the overall and over-time value of a company, and this can be fully accounted for through intangible assets.