by Erwan COATNOAN DE KERDU

Intangible Capital Value

Our core business: intangible capital valuation

The Valuation of Intangible Capital: An Indispensable Tool for Presidents (Chairman) and CEOs

Published on: 07/11/2024
By: Erwan Coatnan de Kerdu

In a world where innovation and differentiation are key to success, the valuation of intangible capital becomes a strategic priority for business leaders. Often misunderstood and underestimated, this concept goes beyond a simple financial measure. It offers a holistic and integrated approach to the management and development of businesses. In this article, we will explore in detail what the valuation of intangible capital is, what it is used for, and how it can be effectively implemented under the guidance of the President or CEO.

A. What is the Valuation of Intangible Capital?

Intangible capital encompasses all non-physical assets of a company, such as brand, reputation, employee skills, trade secrets, intellectual property, customer relationships, and much more. Unlike tangible assets, these elements are not always explicitly listed in traditional financial statements, but their importance is crucial for creating sustainable value.

The valuation of intangible capital involves identifying, measuring, and managing these assets to maximize their impact on the overall performance of the company. This approach is based on rigorous methodologies and complies with the IPEV Guidelines, ensuring a standardized and internationally recognized approach.

B. What is the Valuation of Intangible Capital Used For?

1. Strategic Decision Making:

By providing a clear and detailed view of intangible assets, valuation helps leaders make informed strategic decisions. Whether it is mergers and acquisitions, partnerships, or new product development, knowing the real value of intangible assets allows for better evaluation of opportunities and risks.

2. Attracting Investors:

Investors seek strong companies with growth potential. By valuing intangible capital, a company can reveal its hidden value, thereby increasing its attractiveness to potential investors.

3. Strengthening Governance:

A better understanding of intangible assets contributes to more robust corporate governance. This includes implementing policies and practices aimed at protecting and maximizing the use of these assets, such as protecting trade secrets and developing internal skills.

4. Improving Performance:

The valuation of intangible capital allows for targeting areas needing improvement and allocating resources more efficiently. For example, strengthening brand reputation or optimizing customer relationships can have a direct and positive impact on financial results.

5. Enhanced Communication with Key Executives:

The valuation of intangible capital facilitates better communication with the Chief Financial Officer and the Chief Innovation Officer. By providing factual and detailed data on the value of intangible assets, it becomes easier to justify investments, prioritize innovation projects, and coordinate financial and development strategies.

6. Measuring the Overall Health of the Company:

Through a factual evaluation of intangible assets, leaders can get an overview of the company’s health. This allows proactive intervention to solve problems, optimize resources, and steer the company towards sustainable and balanced development.

7. Increased Need for Exporting or International Presence:

For companies exporting or present abroad, the valuation of intangible capital is even more crucial. Managing international relationships, adapting to diverse markets, and protecting trade secrets on a global scale make this approach indispensable.

C. Implementation and Involvement of the President or CEO

1. Identification of Intangible Assets:

The first step is to identify all the company’s intangible assets. This can include internal audits, interviews with key stakeholders, and the use of specialized tools like the ICV app Gold.

2. Measurement and Evaluation:

Once identified, these assets need to be evaluated. This step requires the application of quantitative and qualitative methods to assign an accurate value to each asset. The President or CEO must ensure that this evaluation is carried out objectively and rigorously.

3. Integration into the Overall Strategy:

The results of this evaluation must then be integrated into the company’s overall strategy. This may involve adjustments in strategic planning, human resource management, marketing, and risk management.

4. Communication and Awareness:

It is crucial for the President or CEO to communicate the importance of these intangible assets to the entire organization. Raising awareness among employees and stakeholders about the value and importance of these assets can foster a more engaged and proactive corporate culture.

5. Monitoring and Adjustment:

Finally, the valuation of intangible capital is not a one-time exercise but a continuous process. The President or CEO must implement regular monitoring mechanisms to ensure that intangible assets continue to contribute to value creation and adjust strategies based on market and company developments.

Concrete Examples

1. Startup in Go-To-Market (GTM) Phase:

A technology startup in the Go-To-Market (GTM) phase can greatly benefit from valuing its intangible capital. By identifying and valuing its trade secrets, technological innovations, and customer relationships, it can enhance its attractiveness to investors and strategic partners, thereby justifying significant fundraising and facilitating rapid market expansion.

Interest Validation Questions:
1. Do you have valuable trade secrets or technological innovations that could be highlighted to attract investors?
2. Are you looking to strengthen your strategic partnerships to accelerate market penetration?

2. Innovative SME with a 5 Million Euro Turnover:

For an innovative SME generating 5 million euros in turnover, the valuation of intangible capital highlights the value of employee skills, market reputation, and customer relationships. This not only improves internal governance but also enhances communication with investors and partners by showcasing the true value of the company beyond its tangible assets.

Interest Validation Questions:
1. Do you believe that your company’s reputation and customer relationships are key drivers of your success?
2. Are you seeking to improve your internal governance and communication with investors?

3. SME with a 15 Million Euro Turnover:

An SME generating 15 million euros in turnover with international presence can use the valuation of its intangible capital to manage its global operations more effectively. By evaluating intangible assets such as brands, international relationships, and trade secrets, it can optimize its development and protection strategies while strengthening its competitive position in various markets.

Interest Validation Questions:
1. Is your company present in international markets where you face diverse challenges and opportunities?
2. Do you aim to optimize your brand management and protect your trade secrets on a global scale?

Conclusion

The valuation of intangible capital is much more than a simple financial tool. It represents an integrated and holistic approach that allows Presidents and CEOs to maximize the value of their company sustainably. By implementing this approach, leaders can make more informed decisions, attract investors, improve performance, strengthen corporate governance, and enhance communication with key executives such as the Chief Financial Officer and the Chief Innovation Officer. Ultimately, it is an indispensable strategy for any company seeking to stand out and thrive in the modern economy, especially if it exports or has a presence abroad, where challenges and opportunities are multiplied.

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