enough with good will, its Intellectual Capital is $78.6 restructuring charges, and other billion. But market-to-book ratios items, that many complain that have three problems. First, the they no longer describe financial stock market is volatile and performance clearly. Yet if it would responds, often strongly, to factors be a mistake to mingle measures outside the control of of Intellectual Capital with financial management. Second, there is data, it would be a greater one not evidence that both book value and to use them at all. Ultimately market value are usually managing Intellectual Capital understated. Third, while it is nice depends on finding rigorous ways to say that Microsoft has $78.6 to track it, which correlates with billion in intangible assets, so financial results. The data we want what? What can I, as a manager or should, first, allow management to investor, do with this information? evaluate year-to-year performance to measure progress towards The research regarding the – goals and, second but more measuring and visualization of IC – difficult, permit and the intangible assets of comparisons. companies and organizations have, Undoubtedly measuring knowledge during the last decades, resulted in assets must be imprecise, but various methods, models and there is a lot of informed theories concerning this area of guesswork in numbers, too. study. “hard” Value is defined by the buyer, not methods can be classified into the seller: something is worth what four categories of the someone is willing to pay for it. A measurement approaches, as company, therefore, is worth what illustrated in the figure below. They the stock market says: price per are: component-by-component and share x total number of shares non-monetary, outstanding = market value, what component and monetary, the company as a whole is worth. organizational level and The simplest, and by no means monetary and organizational level worst, measure of Intellectual and monetary. Capital is the difference between its market value and its book equity. The assumption here is that everything left in the market value 2001) after accounting for the fixed Some believe that IC can be assets must be intangible assets. If quantified and precisely expressed Microsoft is worth $85.5 billion and in terms, others deny its book value is $6.9 billion, then that such an approach would be
enough with good will, restructuring charges, and other items, that many complain that they no longer describe financial performance clearly. Yet if it would be a mistake to mingle measures of Intellectual Capital with financial data, it would be a greater one not to use them at all. Ultimately managing Intellectual Capital depends on finding rigorous ways to track it, which correlates with financial results. The data we want should, first, allow management to evaluate year-to-year performance – to measure progress towards goals – and, second but more difficult, permit comparisons. Undoubtedly measuring knowledge assets must be imprecise, but there is a lot of informed guesswork in “hard” numbers, too. Value is defined by the buyer, not the seller: something is worth what someone is willing to pay for it. A company, therefore, is worth what the stock market says: price per share x total number of shares outstanding = market value, what the company as a whole is worth. The simplest, and by no means worst, measure of Intellectual Capital is the difference between its market value and its book equity. The assumption here is that everything left in the market value after accounting for the fixed assets must be intangible assets. If Microsoft is worth $85.5 billion and its book value is $6.9 billion, then its Intellectual Capital is $78.6 billion. But market-to-book ratios have three problems. First, the stock market is volatile and responds, often strongly, to factors outside the control of management. Second, there is evidence that both book value and market value are usually understated. Third, while it is nice to say that Microsoft has $78.6 billion in intangible assets, so what? What can I, as a manager or investor, do with this information? The research regarding the measuring and visualization of IC and the intangible assets of companies and organizations have, during the last decades, resulted in various methods, models and theories concerning this area of study. methods can be classified into four categories of the measurement approaches, as illustrated in the figure below. They are: component-by-component and non-monetary, and monetary, organizational level and and organizational level and monetary. 2001) Some believe that IC can be quantified and precisely expressed in monetary terms, others deny that such an approach would be component