How Intangibles Account For 90% Of S + P Econ. Value Though Mostly Unreported

Intangibles now account for 90% of the S&P 500's total assets, valued at approximately $21 trillion. This is largely due to the economy's growing reliance on software, data, research, biotech, legal advice, media and entertainment as well as other forms of intangible intellectual property. 

But for most companies, including Apple, Amazon, Alibaba, Tesla, Microsoft, Alphabet, Tencent, et al, 97% of that value remains unreported on company financial statements because generally accepted accounting principles, grounded in the steam-engine-driven industrial age, do not require it. For economics and related social sciences to provide accurate valuation for optimizing socio-political and economic resource allocation, intangible factors representing such a dominant share of value must be more systematically reported and understood. JL

Aran Ali reports in DataStream, Konrad Jagodzinski and Florina Carmack-Lloyd report in BrandFinance:

Intangible assets are holdings that don’t carry physical or financial embodiment. This includes R&D, intellectual property, computerized information, data and software. Today, intangibles are worth over $21 trillion.  (For) the S&P 500’s market value, intangible assets currently account for 90% of the index’s total assets. This is an historical high. By intangible value, the top 10 companies this year are Apple, Amazon, Microsoft, Alphabet, Facebook, Alibaba, Tencent, Tesla, and VISA. (97%) of the US$10.8 trillion of intangible value among the top 10 companies is undisclosed on company balance sheets. More reporting of intangible asset value facilitates investor understanding and capital allocation.DataStream When it comes to the S&P 500’s market value, abstract is in.

Intangible assets currently account for 90% of the index’s total assets. Not only is this a historical high—it’s a nod to just how prevalent technology has become in our lives.

Intangible assets are holdings that don’t carry any physical or financial embodiment. This includes R&D, intellectual property, and computerized information such as data and software. While they’re often difficult to value due to certain accounting practices, today, intangibles are worth over $21 trillion.

Year	Value of Intangibles in S&P 500
1975	$122 Billion
1985	$428 Billion
1995	$3.12 Trillion
2005	$9.28 Trillion
2018	$21.03 Trillion

The value of intangible assets in dollar terms has risen from $122 billion in 1975, eventually soaring past the $1 trillion mark in the coming decades.

The 1990s ushered society into an era of tech, where intangible assets first began to take majority status. The timeline was hardly linear and smooth transition, and some serious bumps took place along the way including two market crashes in 2000 and 2008.

There are reasons to suggest that influence of tech and thus intangible assets has more steam in its engine. The looming 5G revolution, more internet users on the horizon, and the powerful potential of new technologies are all supporting considerations.

Brand FinanceThe Brand Finance Global Intangible Finance Tracker (GIFT™) study ranks the top global companies by total intangible value. The top 10 companies this year are Apple, Amazon, Aramco, Microsoft, Alphabet, Facebook, Alibaba, Tencent, Tesla, and VISA.

During the year, the intangible value of these companies started at US$7.2 trillion, then dropped by just shy of US$1 trillion during the COVID-19 crash, and finally skyrocketed to a total of US$10.8 trillion as at 1^st September. This enormous volatility points to fundamental flaws in investor understanding of company assets.

Global stock markets have been extremely volatile in 2020 as a result of COVID-19, Brexit, a negative oil price, and the rollercoaster of Biden vs Trump. 2020 is considered to be the most volatile year since 1929, suggesting that most investors do not fully understand the underlying value of the companies they invest in, leaving room for wildly fluctuating share prices and mass panic.

The vast majority (97%) of the US$10.8 trillion of intangible value among the top 10 companies ranked in the Brand Finance GIFT™ 2020 study is undefined and remains undisclosed on company balance sheets. Brand Finance makes strides to narrow this disclosure gap by publishing the value of 5,000 of the world’s most valuable brands each year. Our brand values account for between 3% and 25% of the intangible value of these most intangible companies. The monetary value of other intangibles – technology, rights, relationships – remains unknown.

Brand Finance strongly believes that maintaining the status quo in financial reporting is simply irresponsible. Investors need more information about the nature and value of internally generated intangible assets. Brand Finance polled a representative sample of over 50 experts in the field asking if they agree – 92% think investors need more quantitative information about internally generated intangible assets.

This year, more than ever, has provided proof of the need for more comprehensive reporting of intangible asset value, to facilitate investor understanding and capital allocation.

To achieve this, reporting standards must demand more on the quality of intangible asset reporting. The IASB has launched a discussion paper on this very topic and will accept feedback for the next 10 weeks. Brand Finance encourages all stakeholders to engage in this topic, write to IASB, and demand better disclosure of intangible assets.

This is a once in a generation chance to alter the path of intangible asset reporting. Financial standards are only revisited every 15-20 years and there is a narrow window to effect change.

David Haigh, CEO of Brand Finance, commented:

“It is time for a revolution in financial reporting of intangible assets. I firmly believe that companies must do more to disclose the value of their most important assets. Intangibles play an increasing role in the modern economy – it is about time that balance sheets are allowed to reflect that.”

Annie Brown, Associate at Brand Finance, and author of the GIFT™ report, commented:

“Investors deserve better. They deserve better disclosure about internally generated intangibles, and they deserve a higher quality of the reporting of acquired intangibles. Reporting standards need to go further to guide boards to this greater transparency.”

Expert survey responses:

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