A steady rise in the knowledge-based economy has changed how companies invest, making the quantification of intangible capital more important for investors.

Accounting standards requiring the capitalization of acquired intangibles, are comprehensive and have evolved effectively over time. However, the standards have not evolved and mostly require expensing of internally generated intangibles.

The HOLT Intangible Capital model captures in invested capital both internally generated (R&D) and acquired technology related intangibles but does not capture internally generated (SG&A) or acquired non-technology related intangibles (customer related or brands).

A holistic approach to capitalizing all acquired and internally generated intangibles results in:

  • Improved plausibility and benchmarking of return on capital and price-to-book levels for traditionally asset-light companies.
  • Increased comparability between acquisitive and non-acquisitive companies.
  • Elimination of the accounting earnings penalty for early-stage companies investing in internally generated intangibles.

Capitalized intangibles are significant for many industries and highlight the different forms of investment that exist across industries

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Source: Universe: 2023 US Industrial / Service greater than USD 1B market cap. Financials, Utilities, Energy and Real Estate removed for charting simplicity because they have very small amounts of intangibles.

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HOLT: New Economy, New Rules – Understanding Intangibles Impact on Investment Analysis

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