Endogenous intangible assets
factor.formula
The total amount of endogenous intangible assets $INT_{i,t}$ at time t is composed of knowledge capital $KC_{i,t}$ and organizational capital $OC_{i,t}$, both of which are intangible assets accumulated through internal investment:
The knowledge capital $KC_{i,t}$ is estimated by accumulating and depreciating the R&D expenditure $R&D_{i,t}$ of the enterprise:
The initial knowledge capital $KC_{i0}$ is calculated by dividing the first period R&D expenditure $R&D_{i1}$ by a factor based on the R&D depreciation rate and growth rate to approximate:
The organizational capital $OC_{i,t}$ is estimated by adding and depreciating part of the selling and administrative expenses $SG&A_{i,t}$:
The initial organizational capital $OC_{i0}$ is calculated by approximating the first period's sales and administrative expenses $SG&A_{i1}$ by dividing it by a factor based on the depreciation rate and growth rate of sales and administrative expenses:
in:
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The depreciation rate of R&D expenditure $R&D_{i,t}$ represents the rate at which R&D investment is converted into usable knowledge capital. It is usually assumed that R&D results are not permanent and will gradually depreciate over time. This parameter can be set according to industry characteristics and R&D cycle, and is generally between 15% and 30%. For example, high-tech industries may use higher depreciation rates to reflect the characteristics of rapid technological iteration, while traditional industries may use lower depreciation rates.
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The depreciation rate of sales and administrative expenses $SG&A_{i,t}$ represents the rate at which sales and administrative inputs are converted into organizational capital. Organizational capital includes internal management processes, brand effects, customer relationships, etc., which will also gradually decay over time. This parameter can be adjusted according to industry characteristics and operational efficiency, and is generally between 10% and 25%. Companies with high operational efficiency may adopt a lower depreciation rate.
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The proportion of sales and administrative expenses $SG&A_{i,t}$ that is considered to contribute to the accumulation of organizational capital. Not all sales and administrative expenses are directly converted into organizational capital. For example, a portion may be used for daily operating expenses rather than long-term value creation. This parameter is used to adjust the effective contribution of $SG&A_{i,t}$ to organizational capital, and the value range is usually between 20% and 50%. Companies with strong brand effects may adopt a higher proportion.
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The long-term average growth rate of R&D expenditure $R&D_{i,t}$ and sales and administrative expenses $SG&A_{i,t}$ is used to calculate the initial intangible capital. This parameter reflects the company's long-term investment trend in related fields. In practice, it is usually estimated using the average growth rate of the past few years and adjusted according to the industry life cycle and macroeconomic environment. For example, for companies in fast-growing industries, a higher growth rate should be used.
factor.explanation
Traditional accounting items, such as "intangible assets" and "goodwill", mainly reflect the value of assets acquired by the company through external mergers and acquisitions or transactions, such as patents, trademarks, etc. The "endogenous intangible asset accumulation factor" aims to capture the intangible value accumulated by the company through internal R&D and sales management activities that is not fully reflected in traditional accounting statements, such as: internal research results, brand value, human resources accumulation, corporate culture, etc. The accumulation of these intangible assets is crucial to the company's long-term competitiveness, but is often underestimated in traditional financial statements. Therefore, this factor can better reflect the company's value creation ability achieved through internal resource investment, and provide a more comprehensive perspective for valuation analysis and investment decisions. After the endogenous intangible assets are capitalized, they can be used to improve traditional valuation factors. For example, valuation indicators such as price-to-book ratio and price-to-earnings ratio that consider endogenous intangible assets can be constructed, or endogenous intangible assets can be compared with corporate profitability to explore potential investment opportunities.