Intellectual Capital

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  • Topic: Value, Value network, Labor theory of value
  • Pages : 92 (14400 words )
  • Download(s) : 252
  • Published : April 5, 2013
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Understanding corporate value:
managing and reporting intellectual capital

Intellectual capital Contents

1 Introduction

4

2 Definitions of intellectual capital

6

2.1
2.2

Classifications of intellectual capital
Why is intellectual capital so difficult to measure?

3 IC measurement

8

Generic models
3.1
Balanced scorecard
3.2
Performance prism
3.3
Knowledge assets map approach
Individual company models
3.4
The Skandia navigator
3.5
Ericsson’s cockpit communicator
3.6
Celemi’s intangible assets monitor
3.7
Ramboll’s holistic company model
3.8
Bates Gruppen CompanyIQ measurement system

IC valuation
3.9
3.10
3.11
3.12
3.13
3.14
3.15
3.16

4 Knowledge management
4.1
4.2

19

Knowledge process wheel
Knowledge management and the accounting profession

5 Reporting intellectual capital
5.1
5.2
5.3

14

The value-added approach
The value creation index
Market or value-based approach
Tobin’s q
Calculated intangible value
Matching assets to earnings – the Baruch Lev method
Human resource accounting
Value-added intellectual capital coefficient

23

Accounting standards
Operating and financial review
Intellectual capital reports

6 Conclusion

26

Writers: Danka Starovic, project manager, technical issues, CIMA, and Bernard Marr, research fellow in the Centre for Business Performance at Cranfield School of Management
Production editor: Sarah Vaux
Designer: Adrian Taylor
Publisher: Chartered Institute of Management Accountants
Inquiries: technical.services@cimaglobal.com (tel: 020 8849 2275) 3

Intellectual capital

1 Introduction

Knowledge being the new engine of
corporate development has become one
of the great clichés of recent years, but
there is no doubt that successful
companies tend to be those that
continually innovate, relying on new
technologies and the skills and
knowledge of their employees rather
than assets such as plants or machinery.
Value can be generated by intangibles
not always reflected in financial
statements and forward-looking
companies have realised that these are
an integral part of fully understanding
the performance of their business.
At the height of the dotcom boom,
companies with almost no assets in the
traditional sense of the word were
having their stocks more highly rated
than many of the stalwarts of British
and global industry. Much of the
discussion about intangibles thus grew
out of early attempts to account for the
sometimes staggering difference
between the so-called book and market
values of companies.
Since then we have had the US
company collapses, followed by a bear
market that continues to shrink the
value of equities around the world.
Intangibles still matter, but the key
driver for measuring and reporting
them has become transparency.
Investors – understandably wary
about the possibility of inflated
earnings after Enron or WorldCom – are
putting pressure on companies to report
all the value drivers of their
performance and that unavoidably
includes non-financial ones.

4

But it is not only investor pressure that
is forcing companies to accept that
managing intangibles is no longer an
optional extra. Forthcoming legislation
on issues such as the operating and
financial review, due to be included in
the Companies Act 2003, requires large
public and very large private companies
to provide a “qualitative as well as
financial evaluation of performance,
trends and intentions”. In other words,
companies will have to produce an
account of how their intangible assets
contribute to overall value generation.
This briefing is an attempt to raise
awareness of the need for companies of
all sizes to manage and communicate
the value of their business beyond that
captured by numbers alone. Some
companies, usually large, have already
implemented various intellectual capital
(IC) measurement tools and techniques.
The rest see themselves as...
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