A new report from intangible asset specialist EverEdge has examined the impact of intangible assets on company value over the past two decades.
The EverEdge Intangible Benchmark Index (EIBI) was established to track the proportion of intangible assets relative to enterprise value for four indices including the ASX 200 and S&P 500 as well as at the sector level.
For ASX 200 companies, the proportion of intangible assets to enterprise value was 56 per cent in 2020, slightly down from 60 per cent in 2000 and below the 85 per cent recorded for the S&P 500.
“The proportion of intangible assets to enterprise value within ASX-listed companies has remained relatively consistent over the last 20-years,” said EverEdge Global CEO Paul Adams.
“While most sectors in Australia have included a high proportion of intangible assets (on par with the US) since 2005, the high weighting of financials, materials and infrastructure companies in Australia has kept the overall percentage of intangible assets as a proportion of enterprise value at percentages around the mid-to-late 50’s since 2000.”
The index expresses intangible assets as a proportion of a company’s enterprise value rather than existing benchmarks that traditionally focus on market capitalisation.
“Expressing intangible assets as a proportion of enterprise value yields a lower and slower-moving number than if it was compared to equity,” said Mr Adams.
“However, it is a more robust expression of the importance of intangible assets for company valuations and deliberately and perceptibly neutralises the effect of financing choices. This allows for better analysis of a company’s strategic position and management’s build-up of intangible assets.”
On an ASX sector basis, real estate was found to have the lowest levels of intangible assets with 21 per cent in 2020 compared to 32 per cent in 2000, followed by financials which fell from 33 per cent to 24 per cent and energy which dropped from 53 per cent to 25 per cent.
Information technology had the highest proportion of intangible assets at 98 per cent, up from 95 per cent in 2000. A high proportion was also recorded for health care with 93 per cent in 2020, up from 90 per cent in 2000.
“We welcome this report that highlights the importance of intangible assets as a key contributor to economic growth,” said IP Australia director general Michael Schwager.
“As major value creators for many firms and industries, intangibles are driving growth in market value for technology companies across the globe. Intellectual property rights are critical tools for protecting many of these intangibles – notably for technology startups that trade their IP with large incumbents.”
Mr Adams said that EverEdge’s research supported its view that intangible assets are “the most important drivers of company growth and value today”.
“Over the 20 years of the study, the data shows how capital has [consciously or unconsciously] actively and disproportionately rewarded intangible asset-rich companies,” he said.
“It has done so because, other things being equal, companies that are able to harness the inherent scalability and differentiation of intangible assets to growth orientated business models will generate outsized performance.”
