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.
A practical, hands-on guide to a new approach to valuing intangibles Progresses from simple to complex, using case studies that begin with short simple cases and progress to comprehensive real-life case studies *Highlights the distinction between what is currently required by law and what is not required but will give firms a competitive edge
Financial Managers, students in MBA finance programs.
PREFACE 2 DEDICATION 2 ACKNOWLEDGEMENTS 3 TERMS & DISCLAIMERS 3 CHAPTER 1: UPGRADING FUNDAMENTAL ANALYSIS 11 CHAPTER 2: COMPETITIVE ADVANTAGE VALUATION 15 Stock Prices Measure Competitive Advantage 15 Understanding Price Fluctuations 15 Competitive Advantage Costs 16 Competitive Costs 17 Competitive Costs: Not Wage Costs 17 Benefiting from Flawed Valuation Approaches 19 Exploiting Flawed Management Thinking 20 Hard vs. Soft Intangibles 20 Different Resource Types 21 Explaining resource levels 22 The Understood Importance of Intangibles 23 Robust Intangible Valuation Systems 23 Brand as an intangible 24 Robust Intangible Management Systems 26 15 Key-Issues Ignored 26 17 Problematic Valuation Issues 27 Issue #1: Strategy Based (intMgtOS®6001.I05) 27 Issue #2: Incorrect formation (intMgtOS®6001.I1)28 Issue #3: Comparability (intMgtOS®6001.I2) 28 Issue #4: Underlying Component Changes (intMgtOS®6001.I3) 28 Issue #5: Strategy Linked (intMgtOS®6001.I4) 29 Issue #6: Limited Scope (intMgtOS®6001.I5) 29 Issue #7: Ownership Based (intMgtOS®6001.I6) 29 Issue #8: Wage Costs as a Proxy (intMgtOS®6001.I7 29 Issue #9: Productivity not linked to Brand (intMgtOS®6001.I8) 30 Issue #10: Expense Productivity Ignored (intMgtOS®6001.I9) 30 Issue #11: Revenue Potential Ignored (intMgtOS®6001.I10) 30 Issue #12: Employee Motivation Ignored (intMgtOS®6001.I11) 31 Issue #13: Daily Brand Value (intMgtOS®6001.I12) 32 Issue #14: Competitive Advantage Ignored (intMgtOS®6001.I13) 34 Issue #15: Daily Competitive Advantage Valuation (intMgtOS®6001.I14) 35 Issue #16: Confusion Regarding the Term Intangible (intMgtOS®6001.I15) 35 Issue #17: Linking Intangibles to Financial Performance (intMgtOS®6001.I16) 36 18 New Valuation Laws 37 Intangible Laws 40 Financial Performance and Intangibles 42 Profit and Intangible Asset Capitalization 42 Intangible Economics and Profit. 43 Intangible Demand and Conventional Demand 44 Conventional (Tangible) Demand Framework 45 Conventional (Tangible) Demand Framework after Soft Intangibles 46 Expenses and Intangible Demand 46 Tangible Demand after a Reduction in Cost Quality 47 The Intangible Financial Statement Profit Equation 47 Intangible Financial Statements 49 The Intangible Classification System 49 Intangible Assets 49 Intangible Liabilities 50 Intangible Capital 50 Intangible Revenue 50 Intangible Expenses 50 Intangible Profit 51 Intangible Loss 51 Intangible Financial Statements 51 Conclusion and Summary 52 CHAPTER 3: FOUNDATIONS OF INTANGIBLE FINANCIAL STATEMENTS 53 Level 1 Time Analysis 53 Level 2 Time Analysis 54 Level 3 Time Analysis 55 Nanotime Manufacturing 56 An Example 57 Nanotime Value Transactions 58 Pre-contractual performance 59 Contractual performance 60 Post-Contractual performance 62 Nanotime and Value 65 CHAPTER 4: BENCHMARKING INTANGIBLE PERFORMANCE 66 Intangible Finance Statements 66 Proposition 1 66 Optimal Employment Levels 67 Determining OEL 68 Changing Staffing Levels 68 Linking Revenue and Employees 68 Intangible Finance & Intangible Assets 68 Intangible Transactions 70 Intangible Asset Quality 71 True Productivity 72 Quality Management Issues 73 Proposition 2: Intangible value – leading sentiment indicator 73 Proposition 3: Expenses only destroys value 75 Intangible Financial Statements 75 CHAPTER 5: 21ST CENTURY FUNDAMENTAL ANALYSIS 78 The Accounting Crisis 78 The Role of Intangible Standards (intMgtOS®) 78 Accounting Problems 81 Why Accounting Problems Exist 83 Solving Fundamental Problems 84 Accounting or Intangible Management? 86 Applying Intangible Standards (intMgtOS®) 87 Intangible Finance Asset Classes 89 Knowledge Asset Classifications 89 Relationship Asset Classifications 90 Organizational Asset Classifications 91 Four Approaches to Intangible Valuation 91 True & Fair Value Certification 92 Case Study: Microsoft (Nasdaq: MSFT) 93 Step 1: intMgtOS® Physical Availability Report 93 Step 2: intMgtOS® Daily Time Report 96 Step 3: intMgtOS® Real Revenue Report 97 Step 4: intMgtOS® Apportionment Statement 100 Artificial Employment 102 Apportionment Statement: intMgtOS®5001.iR4 105 Interpreting intMgtOS®5001.iR4 108 Step 5: intMgtOS® Intangible Balance Sheet 108 Step 6: intMgtOS® Nanotime Productivity 112 Determining Nanotime Productivity 112 Step 7: intMgtOS® Income Statement 115 Interpreting the Intangible Income Statement 119 Gross iRevenue Efficiency 119 Intangible Expense Analysis 119 Organizational Inefficiencies 120 Knowledge Inefficiencies 120 Relationship Inefficiencies 120 Structural Inefficiencies 120 A Note on the Size of Potential Productivity Savings 121 Productivity Potential 121 Attainable Productivity 122 Sustainable Competitive Advantage Levels 122 Social Capital Effectiveness 123 Human Capital Effectiveness 124 Natural Revenue Growth Rates 124 Step 8: intMgtOS® Sustainability Statement (intMgtOS®5003.iR8) 125 Step 9: intMgtOS® Artificial Employment Statement (intMgtOS®5003.iR9) 126 Step 10: intMgtOS® ROI Statement (intMgtOS®5003.iR10) 126 Step 11: intMgtOS® Daily Value Statement (intMgtOS®5003.iR11) 127 Step 12: intMgtOS® Market Value Statement (intMgtOS®5003.iR12) 129 CHAPTER 6: INTMGTOS® AND OTHER STANDARDS 131 intMgtOS® Standards 131 Intangible Standards 132 ISO® Standards 133 ISO9000 (QMS) and ISO14000 (EMS) 134 ISO9000 134 ISO Certification 135 Conformity Assessment 135 ISO Registration 136 ISO Accreditation 136 Comparing ISO® and intMgtOS® 136 ISO® Costs 137 intMgtOS® Enterprise Certification 137 intMgtOS® Strategic Productivity 138 intMgtOS® Competitive Advantage 138 intMgtOS® Certification 139 intMgtOS® Membership 142 intMgtOS® Professional Membership 142 intMgtOS® Corporate Membership 143 intMgtOS® Client Membership 144 ANSI® Standards 145 ANSI® Costs 146 ANSI® Benefits 146 CHAPTER 7: UPGRADING TECHNICAL ANALYSIS 148 Value Types 148 Positive Intangible Value 149 Negative Intangible Value 151 Returns & Risk 154 CHAPTER 8: INTANGIBLE ANALYSIS OF SECTORS AND INDUSTRIES 156 SECTOR ANALYSIS 156 Analyzing Large Caps 158 Highest Absolute Return 159 Highest Relative Return 159 Lowest Relative Return 159 Analyzing Medium Caps 160 Highest Relative Return 161 Lowest Relative Return 161 Comparison with Strongest Large Cap Results 161 Comparison with Weakest Large Cap Results 162 Analyzing Small Caps 162 Highest Relative Return 163 Lowest Relative Return 163 Comparison with Strongest Large Cap Results 163 Comparison with Weakest Large Cap Results 164 Analyzing Micro Caps 165 Strongest Relative Returns 166 Weakest Relative Returns 166 Intangible Analysis of the Market 166 The Role of -IV 166 The Role of +IV 167 +IV and –IV For Large Caps 167 intMgtOS® Value Factors 168 By Sector: ±IV for Large Caps 168 By Industry: ±IV% for Large Caps 170 Large Cap Industry Returns 170 Top 10 returns for value creating large cap firms (+IV) 170 Bottom 10 returns for value creating large cap firms (+IV) 171 Top 10 returns for value destroying large cap firms (-IV) 171 Bottom 10 returns for value destroying large cap firms (-IV) 172 Explaining the total industry table: 172 By Industry: ±IV% for Medium Caps 179 Top 10 Medium Cap +IV performance 180 Bottom 10 Medium Cap performance 180 Top 10 Medium Cap -IV performance 181 Bottom 10 Medium Cap -IV performance 181 By Industry: ±IV% for Small Caps 187 Top 10 Small Cap +IV performance 188 Bottom 10 Small Cap performance 189 Top 10 Small Cap -IV performance 189 Bottom 10 Small Cap -IV performance 190 By Industry: ±IV% for Micro Caps 195 Top 10 Micro Cap +IV performance 196 Bottom 10 Micro Cap performance 196 Top 10 Micro Cap -IV performance 197 Bottom 10 Micro Cap -IV performance 198 Conclusion 203 CHAPTER 9: THE INTMGTOS® ECONOMY STATEMENT 205 What the Statement Measures 205 intMgtOS®6001.D110: Gross Time Capital (GTC) 205 intMgtOS®6001.D120: Rev:MV Gearing 206 intMgtOS®6001.D130: BV:MV Gearing 208 intMgtOS®6001.D140 – MV:Emp 210 intMgtOS®6001.D160 – opInc% 211 intMgtOS®6001.D170 – IAT% 211 Standfield Factor 212 intMgtOS®6001.D180 – SSP 212 intMgtOS®6001.D185 – SBV/S 213 intMgtOS®6001.D190 – SIV/S 213 intMgtOS®6001.D190 – Standfield factor 214 CHAPTER 10: THE INTMGTOS® STANDFIELD STATEMENT 215 The IntMgtOS® Standfield Statement Analysis 218 Stage 1 Analysis 218 Stage 2 Analysis 219 Stage 3 Analysis 219 Stage 4 Analysis 219 Stage 5 Analysis 219 Standfield Exchange Analysis 220 NASDAQ Analysis 220 AMEX Analysis 223 OTC Analysis 226 NYSE Analysis 229 Conclusion 232 CHAPTER 11: THE INTMGTOS® SMART MONEY STATEMENT 234 Why Smart Money? 234 Specific Exchange Smart Money Statements 235 NASDAQ Analysis 240 AMEX Analysis 244 Conclusions 246 CHAPTER 12: PATTERN RETURN ANALYSIS 247 L1 Pattern Based Analysis 247 Capital Creation (CC) Analysis 247 Negative Share Price Movements 248 Positive Share Price Movements 248 Large Cap Analysis 249 Large Cap +IV Pattern Return Analysis 250 Measuring Absolute Returns 253 By Sector 256 Conclusions for +IV Large Caps 258 Large Cap -IV Pattern Return Analysis 259 Relative Pattern Return (±IV) Analysis 259 Average Return on Investment (±IV) Analysis 260 Relative Return on Sector Investment (±IV) Analysis 261 Absolute Return on Sector Investment (±IV) Analysis 262 Conclusions 262 Medium Cap Analysis 263 Relative Pattern Return (±IV) Analysis 263 Average Return on Investment (±IV) Analysis 264 Relative Return on Sector Investment (±IV) Analysis 266 Absolute Return on Sector Investment (±IV) Analysis 267 Conclusions 268 Small Cap Analysis 268 +IV & –IV Ratios 269 +IV Firm % 269 -IV Firm % 269 NA Firm % 269 +IV to –IV Ratio 269 +IV to NA Ratio 270 Sector Return on Investment Analysis 270 Return by Sector Analysis 272 Wealth Creating (+IV) Small Caps 272 Wealth Destroying (-IV) Small Caps 273 Micro Cap Analysis 274 +IV & –IV Ratios 274 +IV Firm % 275 -IV Firm % 275 NA Firm % 275 +IV to –IV Ratio 275 +IV to NA Ratio 275 Sector Return on Investment Analysis 276 Return by Sector Analysis 277 Wealth Creating (+IV) Micro Caps 278 Wealth Destroying (-IV) Micro Caps 278 Summary 279 +IV Summary 280 -IV Summary 282 Cross Sectional IV Analysis 285 IV Market Composition Indicators 285 +IV Firm % 286 -IV Firm % 286 NA Firm % 286 IV Relative Performance Indicators 286 +IV to –IV Ratio 287 +IV to NA Ratio 287 -IV to NA Ratio 287 IV Return Composition Indicators 288 +IV to -IV Invest Ratio 288 +IV to -IV Return Ratio 289 Return Velocity 289 +IV to -IV Profit Ratio 290 CHAPTER 13: CONCLUSION 291
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- © Academic Press 2005
- 7th June 2005
- Academic Press
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The International Intangible Management Standards Institute, Australia
"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