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IA Finance Management Index

Although corporate balance sheets communicate little to financial stakeholders about a company's intangible assets, the P&L statement, market cap, and price volatility signal much about the quality of company's intangible asset finance management. The Intangible Asset Finance Society Committee on Financial Metrics, with support from Steel City Re, is supporting a measure of intangible asset finance management to benchmark best practices.

Steel City Re has amassed a significant amount of empirical data from this index showing that superior managers of corporate intangible assets (reputation) reward shareholders with above average equity returns. The data, viewed retrospectively, show that companies whose index rankings place them in the top 25% of the 2,483 companies studied during the 28 month period from Dec 2005 to Feb 2008 rewarded their shareholders with an average (portfolio) return of 18% which is about three times the market return of 6%. Moreover, companies whose IA management was very good and who continued to improve, delivered outstanding returns.

Among the companies whose average index ranking was in the top 25%, those whose index rankings did not decline during the 28 month period, numbering 290, rewarded their shareholders with an average (portfolio) return of 50% which is about three times the group average.

Companies whose index rankings declined, numbering 331, rewarded shareholders with average (portfolio) returns of -6%.

In an ongoing series of studies, our data consistently show that superior stewards of intangible assets reward their shareholders with returns that are on the order of three times greater than their peers.

We believe these differences in returns reflect differences in management’s perception of the role of intangible asset stewardship. Briefly, those views can be summarized as:

• Intangible asset management as the price of doing business (the as little expense as possible approach).
• Intangible asset management as a strategy (standardise across the operation to strengthen IAM but rationalise the cost).
• Intangible asset management as a strategic opportunity (seize opportunities to gain.

See Gerken PJ, Liscouski RP, Kossovsky N: Reputation resilience. IAM magazine 2008; 31: (Aug/Sept) 37-41.

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