Task 8. Make up a plan of the text.

Date: 2015-10-07; view: 373.

Task 6. Read the text “Asset Valuation in a Changing Society” and translate it.

Task 7. Find answers to the following questions in the text and write them down:

1. What do bankers demand from anyone who wants to get a loan?

2. What does the term ‘intangible asset' mean?

3. What did Margaret Blair's study show?

4. How is the value of a company determined on the market?

5. What can be a solution in dealing with intangible assets?

ASSET VALUATION IN A CHANGING SOCIETY

The United States is becoming more of a service-driven, techno­logy-oriented society. In such an environment, it's not so much bricks and mortar that represent value as it is ideas, theories and other intangibles.

But just try to go to your banker with a great idea and ask for a loan. Perhaps you have an innovative idea for making a microchip or a new scientific method for processing food. On a less technical basis, it may simply be a better way to service customer needs. The banker's response is likely to be, “Where's the collateral?” Bankers want to see tangible assets that they can repossess and sell if necessary.

Brand names, reputation and intellectual capability are other forms of intangible assets that are taking on increasing importance in our service-oriented economy. Although they are not recognised as assets on the financial statements of a firm, they can have tremendous value in the marketplace. For example, in 1995 shares of Coca-Cola and Microsoft both sold in the stock market for over ten times the physical value of their companies' assets as listed on their balance sheets.

A study by Margaret Blair, a Brookings Institute economist, found that tangible assets (those that are generally recognised on financial statements) represented 62 percent of manufacturing and mining companies' total market value in 1982. A decade later, the value was down to 32 percent. The difference between 32 percent and the full market value of 100 percent is made up by intangible assets.

Intangible values take on even greater importance where professionals services are provided. For example, a 150-person law firm may have a book value that represents little more than desks, chairs, telephones, file cabinets and computers. Yet, the firm may have an international reputation for advising clients on mergers, for possessing patents, for structuring highly sophisticated real estate deals or have other capabilities. The true value of the firm, including its reputation and intellectual capital, may run into the millions, yet its value on its financial statements may be minimal.

Of course, accountants are hesitant to recognise intangible value on the balance sheet because there generally is no objective method for assessing this type of value. One exception is a merger or acquisition when the purchase price paid is well above the book value of the acquired company, and goodwill (an intangible asset) is created. Nevertheless, accountants are like bankers; they want to see an actual asset to establish value. One can empathise with an accountant who has an entrepreneur for a client who wants to list a great idea as a million dollar asset to go along with $1,000 in cash and show a net worth of $1,000,000.

In dealing with intangible assets, perhaps the best solution lies with a strong recognition of the value of ideas and reputation in a technically oriented, service-based society that stops short of actually placing that value on a firm's audited financial statements. The value may well be added as a separate factor by the financial analyst in determining total worth.