Using alternative data to measure intangible assets
Investors may want to pay more attention to intangible assets. As a percentage of total assets on S&P 500 constituents’ balance sheets, intangibles have risen from 17% in 1975 to over 84% today. Many datasets that measure intangibles are relatively unknown and under-utilized – perhaps offering a degree of edge to some investors. In this report we outline where to find alternative data sources that measure 3 types of intangibles: 1) brand value, 2) human capital and 3) intellectual property.
Intangibles – what are they and how do we measure them?
Intangible assets can be difficult to quantify in traditional financial analysis and to compare on a cross sectional level. Broadly defined, intangible assets are assets that are not physical in nature. They can be grouped into 3 categories:
1) Rights – contracts, agreements, licenses, distribution agreements, certifications, franchises
2) Intellectual property – copyrights, trademarks and patents
3) Relationships – across supply-chains, with clients and customers and the work force
Technology-centric intangibles, such as patents and trade secrets, are often a central focus in assessing intangible asset value. However, brand value, human capital, and customer satisfaction are other important factors that make up the value of a company. Datasets that provide insights into these dimensions are relatively unexplored and underutilized compared to their patent and IP counterparts.
Financial materiality for intangibles can of course be sector specific – an important consideration for investors looking to measure intangible values. For example, supply chain relationships and brand value are more relevant for consumer goods and services companies, whereas intellectual capital and patent valuations have a stronger financial link in the tech sector.