Reporting Intellectual Capital to Shareholders

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Reporting Intellectual Capital to Shareholders
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The growing importance of Intellectual Capital

• Research has shown that between 50 to 75 of the
  market value of companies reflect intangible
  assets such as innovation processes, patents,
  brands, trademarks, customer databases, etc.
• Traditional Balance sheet only reports the value
  of physical and financial assets
• Accounting system is not equipped to deal with
  Intangible assets
• Shareholders have to make their own assumptions
  on how intangible assets have changed in value
  during the year
• An IC Report helps in eliminating this problem

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How does an Intellectual Capital Report help
Shareholders

• An IC Report is a statement of changes in the
  companys Intangible Assets
• much like a Balance Sheet is a statement of
  Changes in the Companys Physical and Financial
  Assets
• Unlike physical and financial assets, intangibles
  cannot be valued directly.
• Intangibles are represented by proxies called
  indicators.
• The change in values of these indicators during
  the reporting period indicates the growth or
  decline in intangibles during the period

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How should shareholders interpret an Intellectual
Capital Report

• A well written IC Report has values of the
  intangible indicators along with a desired target
• The indicators are grouped by core competencies
  of the company
• Shareholders can use an IC report to understand
  whether the core competencies are generating new
  products and services
• Sustainable core competencies drive future growth
• If valuation information is published in the IC
  report, shareholders can also it to understand
  the intrinsic worth of the Company