EverEdge has released its inaugural EverEdge Intangible Benchmark Index™ (EIBI), which shows intangible assets now account for 85% of enterprise value for companies in the S&P 500.
The EIBI™ tracks the evolution of intangible assets within four major stock indices – S&P 500, S&P ASX 200, FTSE ST All-Share Index (FSTAS) and S&P NZX All Index – at both the index and underlying Global Industry Classification Standard (GICS) sector levels. It is the first report to undertake this analysis for these Singapore, Australia, and New Zealand indices.
To date, existing research has focused on the rise of intangible assets as a proportion of market capitalisation. However, focusing solely on intangible assets as a proportion of market capitalisation risks conflating operating performance and financing choices.
For instance, a large US airline currently has intangible assets amounting to 200% of market capitalisation. This is counterintuitive since an airline clearly has tangible assets. At an aggregate level this means that, in principle, an index could have an intangible asset to market ratio exceeding 100%.
To neutralise the effect of financing choices, EverEdge has deliberately expressed intangible assets as a proportion of a company’s enterprise value. This provides a more robust expression of the importance of intangible assets for company valuations and deliberately and perceptibly neutralises the effect of financing choices, allowing for better analysis of a company’s strategic position and management’s build-up of intangible assets. A full explanation of why this is so important is included within the report.
Benchmarking Global Indices
EverEdge’s research looks at the evolution of intangible assets as a proportion of enterprise value over a 20-year period at both an index and sector level, across four financial indices.
A key takeout for companies and investors alike is how, over the twenty years of the study, capital has (consciously or unconsciously) actively and disproportionately rewarded intangible asset-rich companies. It has done so because, other things being equal, companies that can harness the inherent scalability, transferability, and differentiation of intangible assets to sound, scalable business models will generate outsized performance.
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