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Mukhametkali A.S., Kaitbek A.K., Shonzhanova S.N., Alimzhan D.T.

  


THE ROLE OF INTANGIBLE ASSETS IN CREATION OF ORGANIZATION VALUE *

  


Аннотация:
this paper is based on the latest approaches to the definition of intangible assets and on the assumption that there is a strong impact between intangible assets and the firm’s value. Intangible assets are the most important factor in the company's competitiveness and have a key role in the digital economy. This is especially true for companies, since successful global companies are provided precisely at the expense of intangible assets. The high reputation of major international companies is based on intangible assets. The focus of our research is to propose real practices for identifying the value of intangible assets based on the analysis of the efforts of other researchers in this area   

Ключевые слова:
intangible assets, identification of intangible assets, intellectual property, firm value   


УДК 336.6

Mukhametkali A.S.

Master student, Business School, Finance

Kazakh-British Technical University

(Kazakhstan, Almaty)

 

Kaitbek A.K.

Master student, Business School, Finance

Kazakh-British Technical University

(Kazakhstan, Almaty)

 

Shonzhanova S.N.

Master student, Business School, Finance

Kazakh-British Technical University

(Kazakhstan, Almaty)

 

Alimzhan D.T.

Master student, Business School, Finance

Kazakh-British Technical University

(Kazakhstan, Almaty)

 

THE ROLE OF INTANGIBLE ASSETS

IN CREATION OF ORGANIZATION VALUE

 

Abstract: this paper is based on the latest approaches to the definition of intangible assets and on the assumption that there is a strong impact between intangible assets and the firm’s value. Intangible assets are the most important factor in the company's competitiveness and have a key role in the digital economy. This is especially true for companies, since successful global companies are provided precisely at the expense of intangible assets. The high reputation of major international companies is based on intangible assets. The focus of our research is to propose real practices for identifying the value of intangible assets based on the analysis of the efforts of other researchers in this area.

 

Keywords: intangible assets, identification of intangible assets, intellectual property, firm value.

 

The globalization of economic processes is designed to ensure the company's competitiveness not only due to material and financial factors, but also due to intangible factors that are increasingly available to most organizations today. Each year, the world’s biggest companies are ranked by intangible asset value in reports such as Brand Finance Global Intangible Finance Tracker (GIFT™). In 2021, Microsoft was estimated as a number one company in terms of total estimated intangible value (US$1.90 trillion), which has got ahead of Apple (US$1.87 trillion), Saudi Aramco (US$1.64 trillion), and Amazon (US$1.47 trillion). As evidenced by the Global Intangible Data Financial Tracker (GIFT ™) 2021, the research shows that the value of intangible assets held by multinational corporations continues to grow [1, p. 32].

Most parts of intangible assets are not perceived, due to the restrictions set by the financial reporting rules, which state that in-house produced intangible assets such as brands cannot be revealed in the balance sheet.

One new perspective for companies is recognizing the evolution of intellectual property as an important part of business. However, most companies have been largely unable to protect their most important assets. According to the World Intellectual Property Organization (WIPO), the most valuable asset class in the world is intellectual property. Also, they state that in the 1980s, tangible assets accounted for about 80% of the company's value, as opposed to today’s state of affairs when 80% of the company's value is comprised of intangible assets [2, p. 7].

From research papers, numerous authors have proposed various methods for measuring the impact of intangible assets on company’s position. Clausen and Hirth (2016), for example, developed a new metric for calculating intangible intensity, which is Return on Tangible Assets. This calculation (ROTA) should be helpful in expressing the productivity of intangibles that already exist.

Intangible assets are divided into intangible properties and intangible resources by researchers such as Hall (1992). Patents, computer software, copyrights, brands, trademarks, trade secrets, registered designs and contracts all fall under the category of intangible property. In the R&D process, intangibles are major value drivers.

IAS 38 states “An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights. Separable assets can be sold, transferred, licensed, etc. Examples of intangible assets include computer software, licenses, trademarks, patents, films, copyrights and import quotas” [3, p. 1].

In our opinion, the interpretation proposed by researchers is a complete and clear reflection of the concept "Intangible assets".

In the Republic of Kazakhstan, for the first time in the history of the development of valuation activities, the valuation standard "Valuing the intellectual property and intangible assets" was adopted in 2018 (Appendix 4 to the order of the Minister of Finance of the Republic of Kazakhstan dated May 5, 2018 No. 519) [4, p. 1].

This standard noted a number of relevant provisions that appraisers should be guided by when conducting the procedure for assessing intangible assets and intellectual property. The standard describes the process of valuation of intangible assets, gives instructions that it should include an analysis of the market of the valued objects, and also states that not only the market itself, to which the property being valued belongs, but also the analysis of the market for products that are produced using the property being valued, is subject to analysis.

It is true that for most companies increasing value is a high priority, regardless of their field of activity. Companies that have the goal of increasing intrinsic value must identify and create all new forms of intangible assets and resources in order to achieve competitive advantage that will help raise the company's value in the market.

  1. Norman and R. Ramirez pointed out that in order to succeed in today's highly competitive environment, companies must have original, or at the very least difficult-to-copy assets. These assets enable companies to gain long-term competitive advantages. As a result, supremacy over competitors is dependent on the effective utilization of intangible assets [5, p. 261].

The concept of calculating the worth of intangible assets has long piqued the scientists as well as business experts such as appraisers and CEOs. According to a study conducted by B. Kovin and T. Stivers, 63% of companies believe it is important to measure the value of intangible assets, but only 14% of all companies actually do so, and only 10% actually use the obtained results in the management process [6, p. 110-127].

The residual operating profit model created by T. A. Garanina is one of the latest methodologies for determining the value of intangible assets. T. Stewart's method of calculated intangible value (CIV – Calculated Intangible Value) was employed as the general approach for this model. The premise behind this method is that the value of a company's intangible assets is equal to the difference between the company's worth and the value of its current tangible assets [7, p. 79-96].

As a result, the value of intangible assets is established by the difference between the company's real return and the market's return on average, because it is these assets which enable the company to beat competitors. The value of intangible assets is becoming increasingly important, indicating the company's ability to generate excess profits.

The traditional forms of financial statements cannot exhibit the potential investors the future success of the company which is also associated with intangible assets used in company’s operation. The existing approach to the formation of financial statements is based on necessity to present adequate information to the owners and allowing to judge on effectivity of company’s management. Therefore, the main indicators that are taken into consideration are return on capital, cost on unit of product etc. However, in firms in which the product is mainly formed by the intangible assets, the company’s success is formed by the efficient management of intangible assets. Therefore, there is a crucial problem of the development of financial statements and formation of so called “new indicators” which reflect the efficiency of the intangible assets’ usage.

The world's leading corporations place high value on intangible assets, and the company's management should focus on them when implementing a value-oriented strategy. The importance of intangible assets in the expansion of the company's worth explains why procedures for involving them in economic turnover and employing these assets must be developed. Also, the need to improve financial reporting, as well as methods for assessing the value of intangible assets and the formation of new indicators which will fully reflect the effectiveness of the use of intangible assets, is becoming one of the main tasks.

Whatever model or method the company's management employs, it must recognize that the proper use of intangible assets leads to the achievement of long-term competitive advantage and, as a result, to the growth in company's value. As a result, not only the fundamental characteristics of a firm should be considered when assessing and analyzing its worth, but also its intangible assets.

 

REFERENCES:

 

Global Intangible Finance Tracker (GIFT™) (2021), Annual review of the world’s intangible value, URL:https://brandirectory.com/download-report/brand-finance-gift-2021.pdf.

WIPO Magazine (2016), URL: https://www.wipo.int/export/sites/www/wipo_magazine/en/pdf/2016/wipo_pub_121_2016_01.pdf.

IFRS (2021), International Financial Reporting Standard (IAS) 38 "Intangible assets", URL: https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets.

Assessment standard "Appraisal of the value of intellectual property and intangible assets", The order of the Minister of Finance of the Republic of Kazakhstan No. 519 dated May 5, 2018,

URL: https://online.zakon.kz/Document/?doc_id=34203568&pos=7;-27#pos=7;-27.

Norman, R. and R. Ramirez (2007) From the value chain to the value constellation / Building a value chain, Alpina Business Books – 261.

Clausen, S. and S. Hirth (2016), Journal of Corporate Finance – 110-127.

Garanina, T. A. (2009) The role of intangible assets in creating company value: theoretical and practical aspects, Corporate Finance - No. 4 (12) – 79-96.

  


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Номер журнала Вестник науки №3 (48) том 4

  


Ссылка для цитирования:

Mukhametkali A.S., Kaitbek A.K., Shonzhanova S.N., Alimzhan D.T. THE ROLE OF INTANGIBLE ASSETS IN CREATION OF ORGANIZATION VALUE // Вестник науки №3 (48) том 4. С. 52 - 57. 2022 г. ISSN 2712-8849 // Электронный ресурс: https://www.вестник-науки.рф/article/5410 (дата обращения: 29.03.2024 г.)


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