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Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition by Robert T. Slee

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CHAPTER 13

Intangible Asset Value

Most value worlds are based on tangible assets and their benefit streams. In contrast, the world of intangible asset value is based entirely on assets that do not have a physical reality. Intangible assets comprise all the elements of a business enterprise that exist in addition to monetary and tangible assets. This world is based on human capital, information, technical know-how, customer relationships, branding, intellectual property (IP)—in short, the collective experience that adds value to a company. This emerging world has grown in influence because of the increasing relative importance of the factors it encompasses.

The concept of IP is not new in the United States. At the urging of Thomas Jefferson, language was adopted by the Constitutional Convention in 1787 designed “to promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” This statement became part of Article 1 Section 8 in the U.S. Constitution. The history of economic progress is the story of combining intellectual creativity with the physical world to produce the economic necessities of life.

Today, it is not unusual to find an increasing chasm between the tangible asset value of a company and its overall enterprise value. Increasingly, intellectual assets are not adequately reflected on companies’ balance sheets. According to generally accepted accounting principles ...

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