Advantages Of Intangibles

INTRODUCTION:

The new mantra in Indian management environment today is shareholders value creation. Shareholders value creation means creation of appropriate profits to the shareholders through better management e.g. adoption of strategic cost management techniques, Brand image, efficient utilization of resources, sound internal structure etc. Normally, shareholders value creation means difference of current year shareholders value minus previous year shareholder value. A company can create value for shareholders when the shareholders return exceeds the required return to equity. The creation of shareholders value can explain as follows:

Created shareholders value =Equity Market value* (shareholders return –ke)

Shareholders value creation

Exhibit II indicates how intangibles are creating value for the organization. The intangibles play a vital role in determining the true value of a company in knowledge economy. The investors attach greater significance to such assets in evaluating their investment in different companies. It is evident that many companies in India have huge intangibles, but large number of corporate’s unable to manage their intangibles. Indian corporates are aware that intangibles are the major drivers of growth of business in knowledge economy. In today’s knowledge-based, fast-changing and technology-intensive economy, the source of economic value and wealth is no longer just the production of material goods, but the creation and monitoring of intangibles on which the success and future of the company is

In the case of publicly listed companies in India, intangible assets are on an average 2/3 of the total value of the enterprises according to the study conducted by MTI consultant. In the light of this information many companies are going to restructure their capital structure to incorporate the value of intangibles in their financial statement to raise more funds from the market. For example in July 2009 SBI accepted Kingfisher airlines brand as a separate from their Beer and wines brands and they raised a loan of $400m as debt. In recent past LT foods, a New Delhi based company used its Daawat brand of packed rice as collateral to raise debt for $50m acquisition of US based rice company Kusha.

Unique Intangibles: Unique intangible assets are those intangibles which are not common in nature or different status for value creation and specific advantages provides to a corporate. According to the nature of different industries and corporate’s different types of information, internal structures, agreements are exist which are main source of wealth creation, such as; Britannia may not be the most admired company but its strong brand continuously earns more money for it. The most valuable intangible assets for HUL are its brand and channel partners (both form the external structure).