Assignment 12- Part 4

Discussion of Physical vs non Physical Assets

This post discusses the transformation from physical to intangible assets  that add value to companies.

In the past companies value could be attained through figuring out the price of all the physical assets that the company owned. This would include building, raw materials, inventory, etc. More recently we see companies like Google that have immense amounts of physical assets such as buildings and data centers, but these physical assets pale in comparison to the value of the intellectual property and human capital under Google’s control.

This move away from physical assets has large effects with regard to valuing a company. Tech companies are often sold between one another which is much harder than selling a fuel company which can quantify how much of a physical asset it has. As a result companies tend to include a category called goodwill which adds to the value of a company above its non physical assets such as its brand recognition and potential.

The other side of this that directly relates to patents is the PVGO ( present value of growth opportunities). Seeing as many of these tech companies stock prices are not based upon consistent earning but rather the potential for future earnings, patents may play a huge role. If a company has a patent that is expected to play a key role in an emerging technology than that company may expect 10 billion dollars for example over the next three years from a patent. They may also get 0 dollars depending on what actually happens with the technology. As a result a large portion of a company’s value may be based on the patents that it holds and the potential earning they may bring in rather than the physical structures and historical earnings.

Here is the article-  www.wipo.int/sme/en/ip_business/ip_asset/business_assets