Intellectual Capital Evaluation: Return on Assets Methods Versus Market Capitalization Methods

Ramanauskaite, Agne; Rudzioniene, Kristina
January 2013
Proceedings of the International Conference on Intellectual Capi;2013, p557
Conference Proceeding
According to the current standards of accounting, only a minor segment of intellectual capital (IC) is presented in financial statements of enterprises as it usually does not satisfy one of the criteria of property recognition in financial accounting, namely, reliable valuation. This results in the need to integrate into the financial accounting such evaluation methods which would enable enterprises to reliably establish the value of IC or its constituent parts in monetary units. A number of scholars have dealt with methods of IC valuation. However, no uniform opinion has been reached yet regarding which of the evaluation methods (return on assets or market capitalization) enable(s) to establish the value of the IC of an enterprise and its constituent parts in monetary units. Hence the objective of the present research is to explore and systemize the advantages and drawbacks typical of these methods and to outline the theoretical aspects of the most appropriate method of IC evaluation in monetary units. The main methods applied in the present article are synthesis and generalization of academic writings. The results of the research and its conclusions are based on the analysis of academic investigations conducted by various authors and the resulting publications. The article generalizes on analyses of methods of IC evaluation suggested in researches of a number of scholars, provides comparisons and reveals advantages as well as drawbacks of these methods. A synthesis of return on assets (ROA) and market capitalization (MC) type methods establishes that the value of the IC of an organization in monetary units is more reliably defined by MC methods. Even though the main disadvantage of these methods is the use of the enterprise market value (MV) as the background yet subjectivity (which is the principal drawback of ROA methods) is thus avoided. Nevertheless, the application of MC methods is limited as they can only be employed for those enterprises whose MV may be reliably established.


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