TITLE

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

AUTHOR(S)

Ramanauskaite, Agne; Rudzioniene, Kristina

PUB. DATE

January 2013

SOURCE

Proceedings of the International Conference on Intellectual Capi;2013, p557

SOURCE TYPE

Conference Proceeding

DOC. TYPE

Article

ABSTRACT

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.

ACCESSION #

87423267

 

Related Articles

• Bridging the gap Between Intellectual Capital Models: An Ancestry/Chronology Approach. Alhusban, Mohammad; Ragsdell, Gillian // Proceedings of the International Conference on Intellectual Capi;2014, p465 

  Since the first coining of the term 'intellectual capital' (IC) in Stewart's "Brainpower" article of 1991, IC has gained popularity and interest amongst researchers from different disciplines as a source of attaining and maintaining competitive advantages. The result of these disciplines (e.g....

• MODEL FOR ACCOUNTING INFORMATION VALUATION, USING MULTIPLE LINEAR REGRESSION. Radneantu, Nicoleta; Stan, Elena Roxana; Gabroveanu, Emilia // Annals of DAAAM & Proceedings;Jan2011, p577 

  The growing importance of intangible assets can be seen while the emergence of knowledge-based economy makes its presence felt. This paper is trying to highlight the importance of intangible assets which are not recorded in traditional financial statements for generating added value. The...

• Effects of lease capitalization techniques on key measures of financial performance. Bostwick, Eric D.; Fahnestock, Robert T.; O'Keefe, W. Timothy // Journal of Finance & Accountancy;Feb2013, Vol. 12, p91 

  This paper examines the effects of selected lease capitalization techniques for five representative companies from five different industries. Changes to financial statement elements (assets, liabilities, equity, and net income) and key performance measures (total debt to assets ratio (D/A),...

• New Standard on Provisions and Contingencies. Walker, Stephen; Westwood, Mark // Chartered Accountants Journal;Feb2001, Vol. 80 Issue 1, p60 

  Explores the expected impact of Financial Reporting Standard No. 15: 'Provisions, Contingent Liabilities and Contingent Assets.' Provisions for planned expenditure; Treatment of contingencies; Approach by Financial Reporting Standards Board to developing New Zealand standards; Contentious issues.

• The IASB and the White Rabbit. Hussey, Roger; Ong, Audra // Accountancy;Mar2003, Vol. 131 Issue 1315, p98 

  Reports on the adoption of the US Financial Accounting Standards Board approach to standard-setting in Taiwan. Technical problem with the translation; Conflict between the Financial Accounting Standards Committee-based approach and the international accounting standards; Recognition of the...

• Changes to Compilation Engagement.  // Practical Accountant;Jan2001, Vol. 34 Issue 1, p18 

  Reports on the issuance of Statement on Standards for Accounting Review Services No. 8, 'Amendment to Statement on Standards for Accounting and Review Services No. 1, Compilation and Review of Financial Statements.' Creation of options for the accountant when performing compilation engagements;...

• Pro-Forma Reporting.  // Practical Accountant;Jan2002, Vol. 35 Issue 1, p21 

  Highlights the survey on the implementation of accounting standards in financial reporting of companies in the United States.

• Internal Use software accounting gets exposure draft.  // Practical Accountant;Feb97, Vol. 30 Issue 2, p55 

  Reports on the Accounting Standards Executive Committee's issuance of a proposed Statement of Position (SOP) that requires companies to adopt uniform rules in their financial statements. Application of the SOP to all non-governmental entities that prepare financial statements; Characterization...

• An International Comparison and Evaluation of Financial Accounting Concepts Statements. Scott, William R. // Canadian Accounting Perspectives;2002, Vol. 1 Issue 2, p163 

  Standard setters in several jurisdictions have adopted statements of financial accounting concepts. Given that concepts statements influence accounting standards, similarities and differences of concepts across jurisdictions will affect the ability of the International Accounting Standards Board...

Read the Article