Intangible Finance Standards book cover

Intangible Finance Standards

Advances in Fundamental Analysis and Technical Analysis

This book asserts that intangibles create financial transactions, not vice versa. It offers distinct, reproducible methods of valuing intangibles in intangible forms, with associated and meaningful financial values. It also presents new management frameworks in which all forms of intangibles can be classified, measured, managed, and reported.

Audience
Financial Managers, students in MBA finance programs.

Paperback, 384 Pages

Published: June 2005

Imprint: Academic Press

ISBN: 978-0-12-663553-9

Reviews

  • "Dr Standfield's work is thorough, systematic and integrative. It synthesizes an innovative methodology which aims to solve a fundamental issue in the knowledge era related to valuation. Dr Standfield has been a leading light in the fields of knowledge management, intellectual capital, and intangible management for many years. The work he has presented pushes the envelope beyond what any other practitioner, or researcher, in these fields has been able to develop." -- Nick Bontis, PhD. Professor of Knowledge Management, McMaster University, Director, Institute for Intellectual Capital Research Inc. Canada. "There has been a substantial amount of 'accounting bashing' in the literature on intangibles and intellectual capital. Here, for the first time, is a comprehensive set of standards that link actual operational activities to actual accounting results as expressed in conventional financial statements - a complementary system to traditional financial reporting. The result is the long awaited system, underpinned by standards, that allows accounting performance to be explained by the value drivers (intangibles) that creates it." -- Per Nikolaj Bukh PhD, BDO Professor, Department of Accounting, The Aarhus School of Business, Denmark "Dr Standfield is the new Management genius of our time and will be as profound to management science as Einstein was to Physics." -- Wayne Larkin, Chairman, of Technology Information Management Marketing Services, Sydney, Australia "Dr. Ken Standfield has once again added to the eminent need for a new mapping measurement and accounting standards of intangibles. Intangible Finance Standards is an impressive work full of valuable distinctions, details and strategic directions to overcome the today's dominance of management anorexia that leads to wealth impairment. It highlights, for example, nanotime productivity and artificial employment versus burst of time to avoid lost of productivity of our most important strategic assets. It proposes several ways to standards and certification that will regain the trust for our future as an asset." -- Professor Leif Edvinsson, the world's first Director of Intellectual Capital; the world's first holder of professorship of Intellectual Capital Lund University, Sweden, author of the international best selling book - Intellectual Capital "In the Knowledge Economy, traditional "flat-world" accounting cannot deal with knowledge - it's value, importance, or true worth. The current accounting debates regarding intangibles will never be solved by using old methods, models, and practices. The only solution is a completely new, but complementary, approach. Intangible Finance Standards: Advances in Fundamental Analysis & Technical Analysis has that new, required, approach. Ken Standfield is clearly on the bleeding-edge of a very important revolution in thinking in the accounting, management, and leadership professions. He is helping to open up new horizons of understanding on the hows and whys of intangibles in the Knowledge Based Economy, something that is essential for all executives and managers to know, understand, and apply. His book details the international standard for financially valuing and reporting intangibles in a way that can be easily understood and practically applied by investors and business leaders to create responsible and sustainable short-term and long-term financial gains." -- Charles Savage, Author of 5th Generation Management and CEO of Knowledge Era Enterprises, USA and Germany "I am very impressed that Intangible Management is solidly anchored in more than a decade's worth of multidisciplinary research and development. Intangibles have never been made more visible." --Dr. Arif Nun, Senior Vice President, Multimedia Development Corporation (MDC), Malaysia

Contents

  • PREFACE 2DEDICATION 2ACKNOWLEDGEMENTS 3TERMS & DISCLAIMERS 3CHAPTER 1: UPGRADING FUNDAMENTAL ANALYSIS 11CHAPTER 2: COMPETITIVE ADVANTAGE VALUATION 15Stock Prices Measure Competitive Advantage 15Understanding Price Fluctuations 15Competitive Advantage Costs 16Competitive Costs 17Competitive Costs: Not Wage Costs 17Benefiting from Flawed Valuation Approaches 19Exploiting Flawed Management Thinking 20Hard vs. Soft Intangibles 20Different Resource Types 21Explaining resource levels 22The Understood Importance of Intangibles 23Robust Intangible Valuation Systems 23Brand as an intangible 24Robust Intangible Management Systems 2615 Key-Issues Ignored 2617 Problematic Valuation Issues 27Issue #1: Strategy Based (intMgtOS®6001.I05) 27Issue #2: Incorrect formation (intMgtOS®6001.I1)28Issue #3: Comparability (intMgtOS®6001.I2) 28Issue #4: Underlying Component Changes (intMgtOS®6001.I3) 28Issue #5: Strategy Linked (intMgtOS®6001.I4) 29Issue #6: Limited Scope (intMgtOS®6001.I5) 29Issue #7: Ownership Based (intMgtOS®6001.I6) 29Issue #8: Wage Costs as a Proxy (intMgtOS®6001.I7 29Issue #9: Productivity not linked to Brand (intMgtOS®6001.I8) 30Issue #10: Expense Productivity Ignored (intMgtOS®6001.I9) 30Issue #11: Revenue Potential Ignored (intMgtOS®6001.I10) 30Issue #12: Employee Motivation Ignored (intMgtOS®6001.I11) 31Issue #13: Daily Brand Value (intMgtOS®6001.I12) 32Issue #14: Competitive Advantage Ignored (intMgtOS®6001.I13) 34Issue #15: Daily Competitive Advantage Valuation (intMgtOS®6001.I14) 35Issue #16: Confusion Regarding the Term Intangible (intMgtOS®6001.I15) 35Issue #17: Linking Intangibles to Financial Performance (intMgtOS®6001.I16) 3618 New Valuation Laws 37Intangible Laws 40Financial Performance and Intangibles 42Profit and Intangible Asset Capitalization 42Intangible Economics and Profit. 43Intangible Demand and Conventional Demand 44Conventional (Tangible) Demand Framework 45Conventional (Tangible) Demand Framework after Soft Intangibles 46Expenses and Intangible Demand 46Tangible Demand after a Reduction in Cost Quality 47The Intangible Financial Statement Profit Equation 47Intangible Financial Statements 49The Intangible Classification System 49Intangible Assets 49Intangible Liabilities 50Intangible Capital 50Intangible Revenue 50Intangible Expenses 50Intangible Profit 51Intangible Loss 51Intangible Financial Statements 51Conclusion and Summary 52CHAPTER 3: FOUNDATIONS OF INTANGIBLE FINANCIAL STATEMENTS 53Level 1 Time Analysis 53Level 2 Time Analysis 54Level 3 Time Analysis 55Nanotime Manufacturing 56An Example 57Nanotime Value Transactions 58Pre-contractual performance 59Contractual performance 60Post-Contractual performance 62Nanotime and Value 65CHAPTER 4: BENCHMARKING INTANGIBLE PERFORMANCE 66Intangible Finance Statements 66Proposition 1 66Optimal Employment Levels 67Determining OEL 68Changing Staffing Levels 68Linking Revenue and Employees 68Intangible Finance & Intangible Assets 68Intangible Transactions 70Intangible Asset Quality 71True Productivity 72Quality Management Issues 73Proposition 2: Intangible value – leading sentiment indicator 73Proposition 3: Expenses only destroys value 75Intangible Financial Statements 75CHAPTER 5: 21ST CENTURY FUNDAMENTAL ANALYSIS 78The Accounting Crisis 78The Role of Intangible Standards (intMgtOS®) 78Accounting Problems 81Why Accounting Problems Exist 83Solving Fundamental Problems 84Accounting or Intangible Management? 86Applying Intangible Standards (intMgtOS®) 87Intangible Finance Asset Classes 89Knowledge Asset Classifications 89Relationship Asset Classifications 90Organizational Asset Classifications 91Four Approaches to Intangible Valuation 91True & Fair Value Certification 92Case Study: Microsoft (Nasdaq: MSFT) 93Step 1: intMgtOS® Physical Availability Report 93Step 2: intMgtOS® Daily Time Report 96Step 3: intMgtOS® Real Revenue Report 97Step 4: intMgtOS® Apportionment Statement 100Artificial Employment 102Apportionment Statement: intMgtOS®5001.iR4 105Interpreting intMgtOS®5001.iR4 108Step 5: intMgtOS® Intangible Balance Sheet 108Step 6: intMgtOS® Nanotime Productivity 112Determining Nanotime Productivity 112Step 7: intMgtOS® Income Statement 115Interpreting the Intangible Income Statement 119Gross iRevenue Efficiency 119Intangible Expense Analysis 119Organizational Inefficiencies 120Knowledge Inefficiencies 120Relationship Inefficiencies 120Structural Inefficiencies 120A Note on the Size of Potential Productivity Savings 121Productivity Potential 121Attainable Productivity 122Sustainable Competitive Advantage Levels 122Social Capital Effectiveness 123Human Capital Effectiveness 124Natural Revenue Growth Rates 124Step 8: intMgtOS® Sustainability Statement (intMgtOS®5003.iR8) 125Step 9: intMgtOS® Artificial Employment Statement (intMgtOS®5003.iR9) 126Step 10: intMgtOS® ROI Statement (intMgtOS®5003.iR10) 126Step 11: intMgtOS® Daily Value Statement (intMgtOS®5003.iR11) 127Step 12: intMgtOS® Market Value Statement (intMgtOS®5003.iR12) 129CHAPTER 6: INTMGTOS® AND OTHER STANDARDS 131intMgtOS® Standards 131Intangible Standards 132ISO® Standards 133ISO9000 (QMS) and ISO14000 (EMS) 134ISO9000 134ISO Certification 135Conformity Assessment 135ISO Registration 136ISO Accreditation 136Comparing ISO® and intMgtOS® 136ISO® Costs 137intMgtOS® Enterprise Certification 137intMgtOS® Strategic Productivity 138intMgtOS® Competitive Advantage 138intMgtOS® Certification 139intMgtOS® Membership 142intMgtOS® Professional Membership 142intMgtOS® Corporate Membership 143intMgtOS® Client Membership 144ANSI® Standards 145ANSI® Costs 146ANSI® Benefits 146CHAPTER 7: UPGRADING TECHNICAL ANALYSIS 148Value Types 148Positive Intangible Value 149Negative Intangible Value 151Returns & Risk 154CHAPTER 8: INTANGIBLE ANALYSIS OF SECTORS AND INDUSTRIES 156SECTOR ANALYSIS 156Analyzing Large Caps 158Highest Absolute Return 159Highest Relative Return 159Lowest Relative Return 159Analyzing Medium Caps 160Highest Relative Return 161Lowest Relative Return 161Comparison with Strongest Large Cap Results 161Comparison with Weakest Large Cap Results 162Analyzing Small Caps 162Highest Relative Return 163Lowest Relative Return 163Comparison with Strongest Large Cap Results 163Comparison with Weakest Large Cap Results 164Analyzing Micro Caps 165Strongest Relative Returns 166Weakest Relative Returns 166Intangible Analysis of the Market 166The Role of -IV 166The Role of +IV 167+IV and –IV For Large Caps 167intMgtOS® Value Factors 168By Sector: ±IV for Large Caps 168By Industry: ±IV% for Large Caps 170Large Cap Industry Returns 170Top 10 returns for value creating large cap firms (+IV) 170Bottom 10 returns for value creating large cap firms (+IV) 171Top 10 returns for value destroying large cap firms (-IV) 171Bottom 10 returns for value destroying large cap firms (-IV) 172Explaining the total industry table: 172By Industry: ±IV% for Medium Caps 179Top 10 Medium Cap +IV performance 180Bottom 10 Medium Cap performance 180Top 10 Medium Cap -IV performance 181Bottom 10 Medium Cap -IV performance 181By Industry: ±IV% for Small Caps 187Top 10 Small Cap +IV performance 188Bottom 10 Small Cap performance 189Top 10 Small Cap -IV performance 189Bottom 10 Small Cap -IV performance 190By Industry: ±IV% for Micro Caps 195Top 10 Micro Cap +IV performance 196Bottom 10 Micro Cap performance 196Top 10 Micro Cap -IV performance 197Bottom 10 Micro Cap -IV performance 198Conclusion 203CHAPTER 9: THE INTMGTOS® ECONOMY STATEMENT 205What the Statement Measures 205intMgtOS®6001.D110: Gross Time Capital (GTC) 205intMgtOS®6001.D120: Rev:MV Gearing 206intMgtOS®6001.D130: BV:MV Gearing 208intMgtOS®6001.D140 – MV:Emp 210intMgtOS®6001.D160 – opInc% 211intMgtOS®6001.D170 – IAT% 211Standfield Factor 212intMgtOS®6001.D180 – SSP 212intMgtOS®6001.D185 – SBV/S 213intMgtOS®6001.D190 – SIV/S 213intMgtOS®6001.D190 – Standfield factor 214CHAPTER 10: THE INTMGTOS® STANDFIELD STATEMENT 215The IntMgtOS® Standfield Statement Analysis 218Stage 1 Analysis 218Stage 2 Analysis 219Stage 3 Analysis 219Stage 4 Analysis 219Stage 5 Analysis 219Standfield Exchange Analysis 220NASDAQ Analysis 220AMEX Analysis 223OTC Analysis 226NYSE Analysis 229Conclusion 232CHAPTER 11: THE INTMGTOS® SMART MONEY STATEMENT 234Why Smart Money? 234Specific Exchange Smart Money Statements 235NASDAQ Analysis 240AMEX Analysis 244Conclusions 246CHAPTER 12: PATTERN RETURN ANALYSIS 247L1 Pattern Based Analysis 247Capital Creation (CC) Analysis 247Negative Share Price Movements 248Positive Share Price Movements 248Large Cap Analysis 249Large Cap +IV Pattern Return Analysis 250Measuring Absolute Returns 253By Sector 256Conclusions for +IV Large Caps 258Large Cap -IV Pattern Return Analysis 259Relative Pattern Return (±IV) Analysis 259Average Return on Investment (±IV) Analysis 260Relative Return on Sector Investment (±IV) Analysis 261Absolute Return on Sector Investment (±IV) Analysis 262Conclusions 262Medium Cap Analysis 263Relative Pattern Return (±IV) Analysis 263Average Return on Investment (±IV) Analysis 264Relative Return on Sector Investment (±IV) Analysis 266Absolute Return on Sector Investment (±IV) Analysis 267Conclusions 268Small Cap Analysis 268+IV & –IV Ratios 269+IV Firm % 269-IV Firm % 269NA Firm % 269+IV to –IV Ratio 269+IV to NA Ratio 270Sector Return on Investment Analysis 270Return by Sector Analysis 272Wealth Creating (+IV) Small Caps 272Wealth Destroying (-IV) Small Caps 273Micro Cap Analysis 274+IV & –IV Ratios 274+IV Firm % 275-IV Firm % 275NA Firm % 275+IV to –IV Ratio 275+IV to NA Ratio 275Sector Return on Investment Analysis 276Return by Sector Analysis 277Wealth Creating (+IV) Micro Caps 278Wealth Destroying (-IV) Micro Caps 278Summary 279+IV Summary 280-IV Summary 282Cross Sectional IV Analysis 285IV Market Composition Indicators 285+IV Firm % 286-IV Firm % 286NA Firm % 286IV Relative Performance Indicators 286+IV to –IV Ratio 287+IV to NA Ratio 287-IV to NA Ratio 287IV Return Composition Indicators 288+IV to -IV Invest Ratio 288+IV to -IV Return Ratio 289Return Velocity 289+IV to -IV Profit Ratio 290CHAPTER 13: CONCLUSION 291

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