You might not be aware of a trend in the corporate valuation world. You might not think that developments in how companies are being valued by the financial world would be of interest to HR. But, hold on to your horses! Validation of “our people are our greatest asset” is here!
Ocean Tomo LLC, the Intellectual Capital Merchant Banc™ firm, publishes an annual study of intangible asset market value. The most recent, published in early 2015, includes a rather eye-popping chart. But first a couple of definitions.
Tangible Asset (from Investopedia): A tangible asset is an asset that has a physical form. Tangible assets include both fixed assets, such as machinery, buildings and land, and current assets, such as inventory. The opposite of a tangible asset is an intangible asset.
Intangible Asset (also from Invetopedia): An intangible asset is an asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today’s marketplace.
Tangible assets are things. Physical things. Intangible assets are the results of human intellect and work. And the financial value of those – tangible and intangible assets – have completely reversed in the last 40 years. Completely!
Ocean Tomo provides the following chart showing this complete reversal.
If ever the argument was made that our people are, in fact, our biggest asset, this nails it. In 1975 tangible assets comprised 83% of the S&P 500 market value; in 2015 intangible assets made up 84% of the S&P 500 market value. That means people, human beings are the greatest driver of corporate value — and not by a little bit.
So here’s the question: if the finance/valuation world is truly valuing our organizations based on the value of our human capital, why is it so hard to talk about – much less act upon – the value of building cultures fit for human beings?
Something to think about during this week’s heat wave.
4 responses to “Tangible Vs. Intangible Assets”
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Hi there, I’m reading the chart as intangible assets making up 17% of the number in 1975 – not 83%. Am I not seeing that correctly? Either way, great post!
Thanks — tangible assets 83% in 1975 and 16% in 2015; intangible assets 17% in 1975 and 84% in 2015. Amazing reversal and not just accounting tricks…