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Intangible assets are defined as non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as separate.
Intangible assets such as patents, copyrights, software, trade secrets, and customer relationships can be valuated. Since few sales of benchmark intangible assets can ever be observed, one often values these sorts of assets using either a present value model or estimating the costs to recreate it.
There are five primary forms of intangible assets:
1) legal intangible such as trade secrets (e.g., customer lists), copyrights, patents, trademarks, and goodwill and are known under the generic term intellectual property and generate legal property rights defensible in a court of law.
2) competitive intangible such as knowledge activities (know-how, knowledge), collaboration activities, leverage activities, and structural activities directly impact effectiveness, productivity and opportunity costs within an organization and therefore costs, revenues, customer service, satisfaction, market value, and share price.
3) reputation intangible such as brand assets, intellectual property (creative) activities and partner collaboration 'directly impact' an organization and shareholder value therefore costs, revenues, customer service, satisfaction, market value, and share price.
4) supply chain intangible such as global business continuity, realtime intellectual property monitoring and partner collaboration activities 'directly impact' an organization's disaster recovery (backup) therefore just in-time' manufacturing costs, revenues, customer service, satisfaction, market value, and the daily share price.
5) insured intangible: such as the IFRS/FASB influence 'risk-manage' tracked assets a.k.a. the insurance contract, and the reinsurance (cedant) 'incrementally impacts' active risk management, realtime productivity costs within an organization and therefore active-risk loss, credit rating, in-line revenues, services, market value, and the share price.
Competitive intangibles are the source from which competitive advantage flows, or is destroyed. The area of finance that deals with intangible assets is known as Intangible Asset Finance.
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