Consequence of an IC-index Approach. Connecting IC to Shareholder Value Shareholder value = market value The impact of IC is stronger in opportunities.

Slides:



Advertisements
Similar presentations
Consolidation of Financial Information
Advertisements

In relative valuation (i.e. the multiples approach), the objective is to value assets based on how similar assets are currently priced in the market. While.
FUNDAMENTALS OF ACCOUNTING Dr. Rana Singh www. ranasingh
Chapter 20 CONTROLLING FOR ORGANIZATIONAL PERFORMANCE
Lesson 01 Introduction to Accounting. Contents What is accounting? Definitions and scope of accounting Book keeping, Accounting and Accountancy Accounting.
© 2009 Clarence Byrd Inc. 1 Chapter 2 Investments In Equity Securities.
PricewaterhouseCoopers April 2007 Income Taxes and Purchase Accounting FAS 109 governs Income Tax Accounting Under GAAP Generally requires Deferred Income.
Group Financial Reporting And other investment issues.
Key Intangible value drivers and intangible assets monitor Presented By: Sandeep Kaushik Akshaya Bir Bikram Singh Nitin Pandey
Theoretical Structure of Financial Accounting
Major classifications of multiples Price multiples – ratios of a stock’s market price to some measure of fundamental value per share Enterprise value multiples.
CONCEPTS of VALUE. FACTORS OF VALUE UTILITY –THE ABILITY OF A PRODUCT TO SATISFY HUMAN WANTS. RELATES TO THE DAMAND SIDE OF THE MARKET. SCARCITY –THE.
VALUATION OF FIRMS IN MERGERS AND ACQUISITIONS OKAN BAYRAK.
Statement of Cash Flows. FIN 591: Financial Fundamentals/Valuation2 EBITDA  Many people define cash flow as EBITDA –What is its relevance? –What is it.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 13 Measuring and Evaluating Financial Performance.
Introduction to Financial Statements and Other Financial Reporting Topics COPYRIGHT ©2007 Thomson South-Western, a part of the Thomson Corporation. Thomson,
A Framework for Financial Statement Analysis Chapter 11.
“I Will Return!!” (not GEN MacArthur) A Charter Class member returns to speak on PE Valuation Bruce B. Bingham, FASA, FRICS 23 September 2013.
IMPAIRMENT OF ASSETS. DEFINITIONS NOT SAME IAS 36 was reissued in March 2004 and applies to goodwill and intangible assets acquired in business combinations.
Chapter 20 CONTROLLING FOR ORGANIZATIONAL PERFORMANCE © 2003 Pearson Education Canada Inc.20.1.
Accounting Ratios S4 Accounting. RATIO ANALYSIS Ratio analysis is the process of determining and interpreting numerical relationship based on financial.
Consolidation of Financial Information
Pro Forma Financial Statements
Financial Statements 2 Lecture 3
Reporting and Communications Developments Juergen H. Daum SAP AG.
Name DivRoll No Gufran Siddiqui A 53 Aabid Kalokhe a 20 Shehzad Khan A 30 Asif valsangkar a 61 Farhan Ansari a 04 Shoaib shaikh a 50 Zeeshan azmi a 06.
Consolidated Financial Statements and Outside Ownership
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 13 Measuring and Evaluating Financial Performance.
Fair Value Measurement By: Associate Professor Dr. GholamReza Zandi
ทุนทางปัญญา Intellectual Capital KM 743 ผศ. ดร. ปิติพงษ์ ยอดมงคล Asst.Prof.Dr.Pitipong Yodmongkol วิทยาลัยศิลปะ สื่อ และเทคโนโลยี มหาวิทยาลัยเชียงใหม่
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Performance Evaluation Chapter 10 1.
Auditing Fair Value Measurements. 2 General Challenges presented to auditors:  Obtain a sufficient understanding of the entity’s processes and relevant.
 Mergers and acquisitions  Fundamental analysis for share valuation  Evaluation of a business strategy.
An Introduction to Basic Finance
Conceptual Framework For Financial Reporting
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2007 All rights reserved. Clinic 2-1 Accounting Clinic II.
Lahore School of Economics BBA III Summer Term II-2010 History & Balance Sheet Analysis.
Business Valuations. Reasons for wanting to know about value:  Market transactions  Scorecards  Estate planning  Family transfers  ESOP  Litigation.
Costing Human Resources The Costs and Benefits Of Human Resources.
CHAPTER TEN Capital Budgeting: Basic Framework J.D. Han.
Chapter 9: CAPITAL ASSETS CHAPTER 9. GOODWILL Goodwill is the value of all the favourable attributes that relate to a company. Goodwill includes exceptional.
Business Valuation
Financial Accounting Fundamentals
Financial Statement Analysis. RATIO ANALYSIS Financial statements report both on a firm’s position at a point in time and on its operations over some.
Chapter 7 Financial Statement Analysis: Connecting Economic Concepts to Accounting Reports Mark Higgins Chapter 7 Financial Statement Analysis: Connecting.
Discuss Accounting Concepts of Assets 1. Asset -- a resource that has a potential future economic benefit. 2. Asset Valuation -- the monetary amount assigned.
1 Analysis of Financial Statements. 2  Organize a systematic financial ratio analysis using common-size financial statements and the DuPont framework.
2-1 FINANCIAL ACCOUNTING AN INTRODUCTION TO CONCEPTS, METHODS, AND USES 10th Edition Clyde P. Stickney and Roman L. Weil Chapter 2 – Balance Sheet: Presenting.
Introduction to Financial Accounting Horngren | Sundem | Elliott | Philbrick 11e Chapter 5 Statement of Cash Flows.
Copyright © 2011 Thomson South-Western, a part of the Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.
IPSAS I6: INVESTMENT PROPERTY Presented by: Georgina Muchai Date: 19/8/2015 A closer look 1.
Chapter 4 Measurement PowerPoint Presentation by Matthew Tilling ©2012 John Wiley & Sons Australia Ltd.
Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.
Financial Accounting II Lecture 08. Intangible Assets Companies Ordinance 1984.
KNOWLEDGE MANAGEMENT (KM) Session # 17. Two Approaches to KVA StepLearning TimeProcess Description 1.Identify core process and its sub processes. 2.Establish.
A2 - 1 Accounting Income and Assets: Accrual Concept.
Chapter 20 CONTROLLING FOR ORGANIZATIONAL PERFORMANCE
Explanatory Notes and Other Financial Information
Chapter 2 Asset and Liability Valuations and Income Recognition.
12 Intangible Assets Intermediate Accounting
Chapter 9 Impairment of Assets.
Definitions Strategic Competitiveness
Introduction to SPICE courseware
Chapter Four Consolidated Financial Statements and Outside Ownership Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution.
ทุนทางปัญญา Intellectual Capital KM 743
Black Rock- A sense of Purpose
GODFREY HODGSON HOLMES TARCA
VALUATION OF FIRMS IN MERGERS AND ACQUISITIONS
Concepts and Objectives of Cost Accounting
Cornerstones of Financial Accounting, 3e.
Presentation transcript:

Consequence of an IC-index Approach

Connecting IC to Shareholder Value Shareholder value = market value The impact of IC is stronger in opportunities than in operations. The best : Balance the IC & Financial Capital

Connecting IC to Shareholder Value The impact of IC is stronger in opportunities: rule of increasing return The impact of FC is stronger in operations: rule of diminishing return The best : Balance the IC & Financial Capital

FC & IC Efficiency Accumulate Investment Financial IC Diminishing return increasing return

Yankee case FC & IC Efficiency Accumulate Investment Financial IC MV

Yankee Finance [Adjust] Index value Time Financial IC MV Manage IC

Machine ple Inc., Index value Time Financial IC MV Manage IC Develop new product (human capital => structural capital Develop new business (structural capital => Financial capital

THE REPORTING OF IC TRADITIONAL ACOUNTING VIEW &

Conceptual roots of IC IC Core Competencies Knowledge leverage Management Knowledge Development KM Innovation Conversation management LO Invisible assets Measurement Report scorecards Financial indicator Narrative

How much? Hidden Value

Monetary value for its IC Three approaches to calculate a monetary value for a company IC: (1) the cost-based approach – determining the value of an asset by ascertaining its replacement costs. (2) the market-based approach – determining the value of an asset by obtaining a consensus of what others in the market have valued the asset at. (3) the income-based approach – determining the value of an asset by looking at the income-producing capability of the asset. Marr, Schiuma, and Neely, 2004

International Accounting Standards Board ได้กำหนดกฎเกณฑ์สำหรับ สิ่งที่จะเป็นสินทรัพย์และ สามารถแสดงมูลค่าได้ในรายงานการเงินขององค์กร (balance sheet) –Asset: a resource controlled by an enterprise as a result of past events and from which future future economic benefit are expected to floe to the enterprise –Intangible asset: “an identifiable non-monetary assets without physical substance held for use in the production or supply of good and service, for rental to others, or for administrative purpose

IC Most IC resources do not fulfill all of the IASC requirements –Company do not own employee –Company do not have full control over employee –Research may not be certain that a piece of technology will generate future economic benefits –Company do not have a full control of its reputation Intangible assets [IASC]: is part of Structure Capital and exclude Relational Capital & Human Capital

Goodwill The excess of the cost of an acquired company over the sum of identifiable net assets –Goodwill occurs when an acquisition takes place [the price is determined, it can be recognized as an asset in the transaction- based accounting system]

The need to start measuring and valuing IC Valuation methods 1.Financial valuation of IC 2.Indicator approach valuation of IC 3.Narrative approach valuation of IC

1. Financial valuation of IC 1.1 Cost approach 1.2 Market approach 1.3 Income approach can be used in combination bandwidth to develop value of IC

IC financial valuation: 1.1 Cost approach Principle: Substitution & Price equilibrium –the investor will pay no more for an investment than the cost to obtain an investment of equal utility –IC price = cost to obtain that resource –Appropriate for setting transfer price, royalty rates, or estimate the amount of damages suffered by infringement

IC financial valuation: 1.1 Cost approach Flaws –Many important factors that drive value are not reflected in the cost approach The amount of benefits associate with IC The trend of the economic benefits The duration over which the economic benefits will be enjoyed

IC financial valuation: 1.2 Market approach Principle: competition and equilibrium –Free and unrestricted market –Supply and Demand factor will drive the price of any goods to a point of equilibrium – ความต้องการแปรผันโดยตรงต่อราคา

IC financial valuation: 1.2 Market approach Flaw –Can be used only if data is available regarding the transaction of IC resources are similar to the subject resources. –When the resources are unique, this approach is not appropriate

IC financial valuation: 1.3 Income approach Principle: anticipation –The value of IC resources = the expected economic income generate by the IC resources –Requires assumptions about the future income that will be produced

IC financial valuation: 1.3 Income approach Flaw –Require good and validly assumption about the future income

2: Indicator valuation Indicator valuation can be used when financial value of IC can not be determined and no other direct measurement can be found Indicator: a reasonably trustworthy estimate of an unknown value [Stam, 2002] Using of proxy for valuation

2: Indicator valuation Proxy valuation –Need several indicators to cover the usefulness of and IC resources –Need a criteria to measure –Difficult to judge whether the level of a particular indicator can be considered “good” or “bad”

3: Narrative valuation Most annual reports contain section about the strategy and resources of the company [tell the stories about the intellectual capital of the firm] Topics are IC related –Employee –Process –Best practice –QA –IT & ICT

3: Narrative valuation example: the Intellectual Capital Statement For the Danish government –Explicit contains a narrative section called “the knowledge narrative” –The section tells the story of how IC helps to create value for companies.

REPORTING OF IC

IC reporting The process of creating a story that shows how a company uses its intellectual capital to create value for its customers Involves Identify, Measuring & Reporting of IC as well as constructing a coherent presentation of how the company uses its knowledge resources

IC reporting IC statement which combines numbers, narrative and visualization of the company intellectual capital IC statement can fulfill two functions 1. Internal management function 2. External reporting function

1. Internal management function IC statements are a part of a company’s knowledge management strategy –IC can systemize KM [a coherent and systematic approach to managing and sharing knowledge which support general strategy] IC statement can develop specifically management of knowledge resource for a company

1. Internal management function IC statement helps develop the firm’s strategy and focuses on its innovative capabilities –Develop customer relation –Develop innovation –Develop effective processes –Develop new business model

1. Internal management function IC statement is a monitoring system that helps firms to account for their intangible resources and relate them to innovation –Survey the composition of intangibles and explain their development –Survey the investments made in developing intangible resources and highlight the firm’s effort to make greater use of intangibles –Monitor the effect of intangible resources and throw light on the results gained from intangible resources

1. Internal management function IC statement benefits the firm’s innovation ambition by linking efforts and objective to make the firm a more innovative one.

IC Statement

2. External reporting function IC statement can be used to communicate to various stakeholder groups –To the company itself [identity] –To potential employees –To customers –To co-operative partners –To investors –To citizens –To political system

IC Statement

IC report

Intellectual Capital Reporting 1.Improving internal management 2.Improving external communication 3.Statutory and transaction issues